You should always make a car payment

Typically, this question is asked from a money-saving perspective:  Will I save more money buying or leasing?  I believe the decision tree looks like this:

1. First, you should always be making a car payment, even if you own the car outright.  If you borrow money to buy or lease the car, you’ll make a payment. But you should do this if you own the car.  Why?  Because buying a new car with cash is like going to a big party and not having a hangover the next day (this analogy is not mine, it’s Kathyrn Amenta’s).  It feels really great.  In 10 years, you’re going to want to have this party again, so you should be saving each month enough money so when you need a new car, you can buy another in cash.  If you’re thinking about buying just to avoid the car payment, that’s the wrong place from which to make a decision.  You will always have a car payment. Even if you borrow money to buy the car, when the loan is paid off, start making those payments to yourself.
    
2. Second, what do you usually do with cars?  I’m the first to admit that I engage whole-heartedly in the American infatuation with the automobile.  I love to drive fun, fast cars.  But when it comes to what I own, I buy cars and hold them as long as I can and run them into the ground.  Let’s face it:  It’s a depreciating asset.  My commitment is 10 years or more to a car.  If this is you, buy.  If you like new cars or if you need it for image purposes professionally, lease.
    
3. Third, do you have kids?  Kids are notoriously hard on cars.  They dent them with their bicycles, they throw up in them, they eat in them and leave their crumbs behind, they crawl all over the inside leaving scratches and bruises.  If you have school-aged kids or younger, buy.  Otherwise, you run the risk of a penalty when you turn the car in at the end of the lease.  If you don’t have kids and you take pretty good care of your car, you might want to lease.
    
4. Fourth, do you drive a lot of miles each year?  If so, buy.
    
5. Fifth, run the numbers, but don’t stress.
    
6. Finally, decide how you feel about the environmental impact.  (What you should do to protect the environment is probably best left to another professionally.  I can amateurishly weigh the argument for/against a new car, but that’s not helpful.)
    

Now that you’re committed to the payment, if you don’t have kids and you don’t drive a lot of miles, in a low interest rate environment, I can make a strong argument for leasing.  You’ll get a new car with all the new features and safety equipment every three years.  If you love that new car smell, you’ll almost always have it.  Let’s face it.  That’s pretty fun.

Drive safely.

Suggestions for managing bills and cash-flow

I’m a big believer in keeping as much cash at your disposal as possible and paying government entities on-time, but not early.  No sense in giving someone free use of my money, especially if I might not owe as much as I’m predicting.  How to do this is always the challenge.

First of all, there’s nothing worse than surprises, so eliminate them.  Be in conversation with your accountant at least three times a year (March, June, and December, if not also September) and talk about your income, how much you’re paying in taxes (whether that’s per paycheck or quarterly payments), what your projections are for the year, and what big expenses you may have this year.  That way, if you can adjust your quarterly payments so that they’re more in line with where you will end up at year’s end, the last check is smaller to write.

Second of all, create an account that is devoted to saving up for those “big checks” that happen annually or semi-annually or actually fund them.   Set aside money for property taxes, go ahead and fund your Health Savings Accounts, and your retirement accounts.  Get that money working for you.

Finally, if you’re behind on payments, create a debt repayment schedule and stick to it.  Throw as much money at those debts as you can so you can get in “real time” on your payments.  Sometimes just having a plan will make you feel more in control and capable.