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New paycheck and an idea about saving for a car

April 21st, 2009 at 12:30 pm

I viewed this Friday's paycheck. This is the first paycheck my raise is 100% incorporated. My take-home increase by $137 per pay-check. Nice : ) I'm still contributing 20% to my 401K. 401K contribution limit in 2009 is $16,500. I thought about maxing this out, then, I decided not to do it.

Reason: I need to save for a car.

I drive 2004 Toyota Rav4 that has about 105K miles. Well, I am planning to drive it until it totally dies on me. However, I commute over 60 miles a day and not having a reliable car is out of question. So far, my lovely Rav4 has been super dependable, but you just never know with high mileaged car.

So, I decided to start saving for a new car, in case something happened to my Rav4. I was thinking about investing in two or three stocks (like GE or Citi) for next 2 years in Sharebuilder account (say, $100 per stock per month) and see how much it grows by the time I need to buy a car. I guess my return will determine what kind of car I can buy.

Or, should I resort in regular savings account??? I think this car should last at least two more years. (I drive about 20K miles a year.)

What do you think?

10 Responses to “New paycheck and an idea about saving for a car”

  1. creditcardfree Says:

    It is never a good idea to put money in the stock market that you will need in 5 years or less. The odds of you losing a significant amount of the principal is just too great.

    I'd put it into the highest yielding money market account or CD that I could find.

    Good luck! Great job on the 401k savings, too.

  2. Nika Says:

    I think she is doing the right thing. And I think this money can be in the stock market - it is not like a downpayment on a house, where she'd have no other options if the market goes down. In this case the risk vs. reward ratio is acceptible, especially considering she can get shares cheaply right now. Mutual funds would be good for this purpose. I would do dollar-cost averaging by depositing small amount every 2 weeks.

    Maismom has a great strategy. Every month that your car lasts, your payment on the next one is getting smaller. If you are lucky, you can have most of the money needed for another car before this one dies. Would it not be nice to have a new car with no debt to come with it?

    As for "reliable" people use this word to justfiy buying any car they want. I am not talking about the poster here, I'm talking about many other people I've met.
    In their mind only a certain type of car is "reliable"(the one they want) and that is it. They may not be able to afford it, but getting anything else means "not loving their children or caring about their safety" and such crp.

    DH commutes 100 (well, 97) miles each day going 80mph on a nj stretch in a year 2000 sedan, and it is fine. Some people would insist on a Volvo or a Mercedes SUV if they had such commute to be "safe" and "reliable".

  3. Blue Eyes Says:

    I agree with creditcardfree. The stock market is too risky to use for short-term savings.

  4. smiley2009 Says:

    I would have to say place in a high yeild savings or checking account maybe online. Simply because as other's have stated the stock market is far to risky especially the way the economy is right now. You wouldn't want to place your money in the stock market for such short time and than it crashes and the money's all gone. Further more I always thought that stock markets are for people who are looking more long term 5 years or more as one stated before.

  5. Petunia Says:

    I've heard the same thing about saving for less than five years. I'm impressed with your milage! That's a lot of driving!

  6. whitestripe Says:

    i'd say there's more possibility of the stock market going UP, or atleast staying the same, in the next few years.

  7. creditcardfree Says:

    Good point whitestripe! However the financial world is on rocky ground. If one really wants to know that money will be there in full in two years, I'd still go with the safer bet of the CD or money market.

  8. Maismom Says:

    These are all good advice. Thank you, you guys. I will make up a plan for it now.

  9. disneysteve Says:

    I would also agree with not putting short-term money in the market.

    I also agree with Nika about the "reliable" car thing. A car doesn't have to be new or low mileage to be reliable. My 1998 Camry has 117,000 miles and I'd drive it cross country tomorrow if I had the opportunity. Same goes for our 2000 Sienna with 110,000 miles. We drive that over 1,000 miles each way to Florida every year and will do it again in August. My medical assistant (who by far lives the farthest from our office of all the employees) drives a 1998 Corolla with over 300,000 miles.

  10. Maismom Says:

    Wow!! 300,000 miles!! That's GREAT!!

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