Everyday Cheapskate: How to buy a new car with all cash

Let's say that tomorrow morning your car is destroyed beyond repair. You must have a car, and because you have no money saved and the insurance check is pathetically small, you opt to buy a brand-new car with nothing down. How much can you afford to pay each month for a car payment? Realistically. $200? $350 or $600?

OK, back to reality. Your car isn't destroyed, and you'll keep driving it for a while. But remember the amount you said you believe you could afford to pay for a car payment each month? Keep reading.

Open a special savings account somewhere convenient and begin immediately to make monthly payments into that account -- the payment you know you could afford if you had to. Let's say that's $300 a month. Pay $300 to yourself every month. Be strict with yourself -- rigid and unbending! No late payments, no slacking. In the meantime -- and as you are making these big new payments -- continue driving the car you have now for one more year, even if it is a clunker. You can endure anything as long as you know it will end. Think hot coals.

At the end of a year, you will have accumulated $3,600 cash plus interest in the Bank of You. Not bad!

Now sell your clunker. I don't know what you have or what it might be worth so let's say you can sell it for $2,000. Put that money with the $3,600 and buy the best car you can find for $5,600 all cash. Keep making $300 payments to yourself. It's becoming a habit, and a very good one at that.

At the end of another year, sell the current clunker for say $4,800 and put that money together with the $3,600 you have saved during the year. Now buy the best used car you can find for your $8,400. Continue making those payments.

At the end of year three, sell the current car for say $7,800, and together with the new $3,600 from your savings, buy the best $11,400 car you can find. Notice: Your selection of good used cars is getting better each year. You have graduated from clunkers to much more respectable automobiles.

Repeat once each year ... upgrading, paying cash for a better car, and still a better car. As you become more adept, you will lose your fear of buying and selling cars.

Keep this routine of making payments first and then upgrading annually. Within five or six years you will have accumulated enough cash to buy a brand-new car -- all cash. You will have more than $25,000, including any interest you have earned each year on your $300 monthly deposits.

Imagine the confidence and personal power, knowing you are not at the mercy of any salesman, bank or finance company as you look for a car. You can negotiate because you have plenty of experience by now.

In time, buying a brand-new car will certainly be an option. But I predict you will pass. By this time, you will be so good at buying late-model, domestic, low-mileage cars for a fraction of the price new, you will scoff at the idea of buying new and taking that big 20-percent depreciation hit on the front end.

Mary Hunt is founder of www.DebtProofLiving.com, a personal finance member website. You can email her at mary@everyday

cheapskate.com, or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630.