Set financial goals and ask yourself Why

With any area of my life, I have found it is very important to set goals. In the case of finances, you want to make sure you have purpose behind your penny pinching. If not, you will find that you fail so much more easily because there is no purpose or reasoning behind it! When we had debt, our reason for frugality was to be able to pay off the debt as quickly as possible. Since we’ve been debt-free, our reasons have become a little more fun, such as saving to buy a home, travel and vacations, and making memories.

Create a budget and check in with it!

Use the envelope system

We have also discussed just how helpful and effective the envelope system is before, but want to reemphasize just how much it will help you to be successful in your finances! It helps you take control of your spending and be more conscious of where your money is going. There was a study done that shows consumers who pay with credit cards focus more on the benefit of their purchase, while those who pay cash concentrate more on its cost. That is because there is an emotional pain associated with handing over physical currency, as opposed to swiping a credit card where that money is out of sight and out of mind. There are so many benefits to using the envelope system and I strongly encourage you to look more into it here!

Look at every purchase as an investment

Identify your spending weaknesses and address them!

By having a budget and tracking your spending you should be able to account for every dollar. Take a look at your expenses and see where you are unnecessarily spending. For some this is picking up unplanned and unnecessary items at the grocery store, online shopping, or buying a soda every day. Whatever your weakness may be, come up with a few ideas on how to combat them. If you find yourself always throwing extra things in the shopping cart at the grocery store, maybe try ordering your food online and picking it up! This way you track your spending while you shop and can resist impulse buys. If online shopping is your downfall, try unsubscribing from the shopping email lists, or following shops on social media that make you want to spend spend spend!

Read books or listen to podcasts that will help educate and motive you financially

Buying a car is a big purchase. There should be a lot that goes into what you want in a car, including price. Tara and I have bought 4 cars in the 4 years we’ve been married and would like to share our experiences of when we bought our cars with cash vs. when we bought our cars on credit.

Cars we bought on credit

While we were dating, I bought my first car on credit, a Mazda 6. This was the worst experience I’ve had buying a car, mainly due to the crappy salesman I had to deal with. I didn’t have any experience buying a car and so the salesman took advantage of that, promising me a certain payment, only to call me back the day after I had the car needing more money down and a different payment amount. The loan I had taken out was around $7,000 so my payment was relatively small ($120), but I didn’t realize how much that small payment would hinder my wealth building in the long-term.

About a year later, we got in a wreck and realized that we barely had any equity in the car. The insurance paid off the loan, but we were left with only $1,000 to buy another car. We felt we didn’t have other options so we decided to get another car on credit. This car was cheaper ($4,000) and the payment was only $100 a month. This car seemed to be a really great deal at the time, but it ended up having quite a few problems. The A/C died on us and the brake pads quickly went out. We also had some suspension issues that would have cost us around $1,000 (had we fixed it).

Car we bought in cash

Shortly after we bought this car, we realized that we would need another car (Tara and I both worked at the time). We knew we didn’t want to buy a car with credit this time and decided to find a car to buy with cash. We found an old Honda that was listed for $1,500.The seller was a private seller close to where we lived. He wasn’t trying to up-sell us on anything and was willing to work with us having only $1,200 cash. We bought this car pain free and drove it for another year before selling it and moving to Texas.

Not everyone’s experience with buying a car on credit is necessarily bad. I think our experiences are especially bad looking back on how it has hurt our financial growth. We were really good at paying extra on our cars and getting out of debt, but if we could have put that extra money towards investing, we would have had around $15k+*.

In our society it is “normal” to have a car payment. We have decided that we don’t want to be “normal” anymore. Our next car purchase will be with cash. And the next. And the next. And the next. You get the point. It takes time and dedication to save and pay cash for a car. We currently drive a paid for SUV that we love. I think because we own it and don’t have payments on it, we appreciate it even more. It’s no longer a burden, but a blessing.

The difference

The biggest difference for us buying cash compared to on credit, wasn’t the actual buying experience. It was after we had bought the cars. Our first car left us with few options after we had gotten in a crash. The second car had issues that we had to fix on top of making payments. Most of all, we slowed down our path to wealth.

Not having payments has helped us to grow our net worth substantially. We are able to take trips like the one we are going to in May. But most importantly, we don’t have the stress that car payments bring.

What experiences do you guys have with buying a car? Did it feel different buying cash over on credit? Does it help bring you peace of mind?

*This is based off of us making double the payments at $240/month over 4 years with 11% returns. Dave’s Calculator