Car payments are a beautiful thing, aren’t they?
Of course they are…when you are the one receiving them.
When it comes to car payments, you have two options.
You can take out a loan, put yourself in debt, and pay interest on your monthly payment to a financial institution, or you can opt for the better option…
Make a payment to yourself!
That’s right. Open an account and set a certain amount as your monthly payment, which will automatically go into the account every month. Not only will you be saving for a vehicle, but you can earn interest on the money you save, instead of paying interest on your car payments.
What Type of Account is Best?
The best type of account to use depends on how long you will have to save. If you have less than 2 years, then your best bet is something safe, like a Money Market account. When you have 3 or 4 years to save, you can look to a low-risk mutual fund. If you have been very responsible, thought ahead, and have 5 years or more to save, then you can look at some aggressive mutual funds and possibly individual stocks. It is always best to use the stock market only when you have at least 5 years before you will need the money.
As with any investment, the longer you have, the greater your expected return. The main point here is to plan ahead.
If you currently own a vehicle, chances are that you will need a new one in the future, whether sooner or later. Why not start making the payment to yourself now in a savings or investment account? This allows you to pay what you can afford instead of having to afford the car payment you are stuck with.