The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: MatthewK on March 28, 2017, 01:39:54 PM
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Ok, pretty much what the title asks. We have 2 paid for cars that should get us by for another 5 years or so. I'm done with auto loans and will be paying cash from here on out. I don't plan on paying more than 12k for replacements when the day comes. Where do you guys suggest saving this money? Right now it's in a taxable account but not sure if that's the best strategy. What do you think? Thanks
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I am risk heavy and just don't save specifically for it. My taxable account is over 100k now, and I float with about 10k in my checking.
I'd just invest it personally, you come out ahead over your lifetime. Though, if you don't have a good stache yet, maybe just keep it in a savings account...
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I don't specifically save for a car either, and just account for that when planning out emergency funds. Also, this depends your income and savings rate (how much you could cashflow to a replacement in a given "bad" month).
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Ok, I should have mentioned that since we've paid off the last car we have been setting aside around $300 mo., about the amount of a car payment, into a checking account. We had about $7k built up just sitting there. So I moved it to our taxable account and continue to put in that amount monthly, as well as any other surplus after contributing to 401k and Roths. It should be quite a few years before we need that money for a replacement vehicle. Good strategy? Thanks
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Just keep in mind that when you do need the money and have to sell that the taxes on your gains (good problem to have) or realizing losses (not a good problem) could easily be more money than a low interest car loan. Debt, used responsibly, can be ok if it actually reduces your overall costs.
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I financed a truck in 2000 with my credit union. Paid $610 every two weeks by direct deposit. Truck paid off pretty quickly. When the loan was over they kept making the draft from my paycheck. They put it in my savings account. I called them up and asked about the continued draft. They said it would continue unless I stopped it. I never stopped it. It's got about $8000 in it right now. It's an emergency fund and I buy stuff with it, my last two vehicles, home improvement, etc. If it gets too big I buy VTSAX with it.
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I am risk heavy and just don't save specifically for it. My taxable account is over 100k now, and I float with about 10k in my checking.
I'd just invest it personally, you come out ahead over your lifetime. Though, if you don't have a good stache yet, maybe just keep it in a savings account...
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This is my plan too. I don't maintain a car fund, I maintain a healthy taxable investment account(checking ~2.5k-5k is my mental happy spot, I have been comfortable with my taxable account as an emergency fund location after it passed 50k, now it's up to 100k ish). Also, taking the long view on things, and not being particularly scared of not-terrible low-interest debt, I'd just use an auto loan. I know mustachians mostly sneeze at loans, but with new car loans 0-3% depending on incentives/financier, and somewhere around 2-4% on used depending on credit score and incentives, I'd take the loan. Same reason I won't pay extra on the house and intend on letting the mortgage last as long as I am in this house, up to 30 years.
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Ok, I should have mentioned that since we've paid off the last car we have been setting aside around $300 mo., about the amount of a car payment, into a checking account. We had about $7k built up just sitting there. So I moved it to our taxable account and continue to put in that amount monthly, as well as any other surplus after contributing to 401k and Roths. It should be quite a few years before we need that money for a replacement vehicle. Good strategy? Thanks
It depends on your own personal temperament. You'll have to find that answer for yourself, whether you feel comfortable with an emergency fund of cash, or with a taxable buffer account invested and with, say, margin loan access on it. If you expect to need money within the next 3-5 years, cash/CD's is the best option, because of volatility. However, if you don't know when you'll need money, and you take the long view on returns/risk, then S&P500 has returned an average of 9%, ~7% after inflation for the last 100 years of history. Or alternatively you could go with Capital in the 21'st Century's estimate of ~5% real gains per annum on capital. YMMV, past results are not indicative of future returns, and terrible periods do exist such as the 15 years it took to recover after the Great Depression, or periods of hyperinflation and other such times in other countries. Historically though, if you expand your time period to 20-30 years, then investing is the best choice.
But look back at the Financial Crash and the dot com burst, post 9/11 and ask yourself where you were mentally, or how you would react, or whether for you personally an emergency fund feels better as something that can't shrink.