“Fund bucket” for new car?

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pepperz
Posts: 392
Joined: Sun Jan 24, 2016 6:13 pm

“Fund bucket” for new car?

Post by pepperz »

How do you guys prioritize saving for your next car?

We have an ‘emergency fund’ (savings account) which holds 6 months living expenses should we ever need it.

We also have a ‘house fund’ (savings account) in order to fund the down payment for our next home.

Does it make sense to create another savings account for His & Her next vehicles - ideally saving however much is necessary each month in order to pay cash for the vehicles whenever they are needed?

I suppose it makes the most sense. I’m just wondering if that’s what most folks here practice when it comes to buying your next car?
Amphian
Posts: 154
Joined: Tue Jan 30, 2018 8:37 pm

Re: “Fund bucket” for new car?

Post by Amphian »

I have it as part of my general emergency fund of a year's worth of expenses, but I'm only buying one car instead of two, and I plan to spend less than $30K. It would mostly wipe the fund out. I'd like to find something better to invest it in, but I have no idea when I will need the money. I could get hit by a truck tomorrow and need a new car, or my car could last another 10 years. (It's 19 years old this year, but in very good shape and relatively low mileage for the age.)
longleaf
Posts: 290
Joined: Sun Nov 26, 2017 3:13 pm

Re: “Fund bucket” for new car?

Post by longleaf »

Would save by contributing to intermediate bond index over time

Can afford to lose some principle for greater yield

You may prefer a savings account; it depends on your time frame.
Frugality, indexing, time.
runner3081
Posts: 5993
Joined: Mon Aug 22, 2016 3:22 pm

Re: “Fund bucket” for new car?

Post by runner3081 »

No individual "buckets" for us. We have one emergency fund that is large enough to handle car purchases, etc.

This may be oversimplifying things, but "buckets" of savings, I mostly see as needed by the undisciplined.
LeisureLee
Posts: 164
Joined: Mon Jan 05, 2015 5:52 pm

Re: “Fund bucket” for new car?

Post by LeisureLee »

We budget a monthly amount for car replacement and keep it in a separate savings account. It's nice to be able to write a check for a car and not to have a depleted emergency fund right afterward. I am wondering if we should switch to just drawing the car cost from our portfolio when we decide to get one. Maybe for the next one.
BuckyBadger
Posts: 1221
Joined: Tue Nov 01, 2011 11:28 am

Re: “Fund bucket” for new car?

Post by BuckyBadger »

Money is fungible, so having actual physical separate accounts is just an arbitrary way of bookkeeping. If you like to do it that way no problem, but nothing says you have to.

If that's how you roll, then have an emergency fund account, a house savings account, and a car replacement account.

We just keep everything in the same account and realize that it's for more than one thing. No new house fund for us, so we just have an account that's for emergencies, large one time payments for things that are coming up -like cars, and our slush fund. The size of this fund varies depending on where we are in the year and in all years.

As long as you know what the money is for there's no reason to build a firewall between it unless you really like doing things that way.
Last edited by BuckyBadger on Thu Apr 12, 2018 6:35 am, edited 1 time in total.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: “Fund bucket” for new car?

Post by The Wizard »

runner3081 wrote: Wed Apr 11, 2018 11:49 pm No individual "buckets" for us. We have one emergency fund that is large enough to handle car purchases, etc.

This may be oversimplifying things, but "buckets" of savings, I mostly see as needed by the undisciplined.
Right.
No need for separate containers or envelopes of savings for different purposes.
This assumes one is living sufficiently beneath their means.

In my case, I'm retired, so no Emergency Fund.
I maintain a big enough checking account balance that I just cash flow all routine expenses.
Buying a new vehicle every 5-6 years is the exception and what I've been doing lately is accumulating funds in my taxable investment account for this purpose...
Attempted new signature...
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Soul.in.Progress
Posts: 181
Joined: Sun Jan 08, 2017 9:24 am

Re: “Fund bucket” for new car?

Post by Soul.in.Progress »

BuckyBadger wrote: Thu Apr 12, 2018 6:35 am Money is fungible, so having actual physical separate accounts is just an arbitrary way of bookkeeping. If you like to do it that way no problem, but nothing says you have to.

If that's how you roll, then have an emergency fund account, a house savings account, and a car replacement account.

We just keep everything in the same account and realize that it's for more than one thing. No new house fund for us, so we just have an account that's for emergencies, large one time payments for things that are coming up -like cars, and our slush fund. The size of this fund varies depending on where we are in the year and in all years.

As long as you know what the money is for there's no reason to build a firewall between it unless you really like doing things that way.
This is us, too. :beer
Start by doing what is necessary; | then do what is possible; | and suddenly you are doing the impossible. | -- Francis of Assisi
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: “Fund bucket” for new car?

Post by inbox788 »

longleaf wrote: Wed Apr 11, 2018 11:28 pm Would save by contributing to intermediate bond index over time

Can afford to lose some principle for greater yield

You may prefer a savings account; it depends on your time frame.
Intermediate bond index is a great suggestion. It goes along with matching duration strategy.

In this low interest rates environment, which may not last, it might still be favorable to finance or lease, so you might not need a car bucket. Also, in my case, replacement time was indefinite, and has stretched to long term so I'm glad I simply lumped the car fund with rest of taxable investments. And I'm thankful for last 10 years market performance because my average replacement car has grown into a luxury car, but I financed my latest vehicle, so I'm letting the car fund ride.
mortfree
Posts: 2968
Joined: Mon Sep 12, 2016 7:06 pm

Re: “Fund bucket” for new car?

Post by mortfree »

if rates stay low, then I would take a loan that gives me a monthly payment of $300. Use cash to make up the difference between the final price and the loan amount...

simple and doesn't deplete your savings or require you to save up separately for a car.

if money isn't an issue, then pay cash. or finance...
Mid-40’s
AnonJohn
Posts: 367
Joined: Wed Oct 07, 2015 2:45 pm

Re: “Fund bucket” for new car?

Post by AnonJohn »

I do something overly complicated that's buckets with a different look. My emergency fund has three tiers (well, Roth is the 4th, but hey). 6 months cash, 6 months pretty safe (including intermediate term munis), 1 year other. Everything but the 6 months cash is considered part of my overall portfolio and asset allocation. For the "1 year other" it's a pot of 70% stocks, 30% bonds, such that a 50% drop in stocks would leave me with about a year's worth of expenses.

The point of it all being: everything but the 6 months is invested, but I could survive 2 years in a very bad case scenario.

With that as background, I have a table in my spreadsheet for anticipated future expenses. For example I want to buy a car in about a year, for about $23,000. So that's pro-rated accordingly in the table, and marked against the 6 month / 6 month / 1 year funds above. At the bottom of the table is a number - the amount that is unallocated to planned expenses and should be invested.

So in this example I have ~$8K saved for the car right now, mostly as extra cash and intermediate term bonds.

That unallocated money goes into the "pot" of taxable investments, which also covers unplanned expenses over 2 years out.

FWIW ...
GreatLaker
Posts: 128
Joined: Mon Jun 12, 2017 7:19 pm

Re: “Fund bucket” for new car?

Post by GreatLaker »

I keep a savings fund to cover the cost of new cars and major home repairs (roof, driveway, HVAC, major appliances, but not upgrades or renovations). I contribute annually to that fund and keep it in a low-cost balanced mutual fund in my non-registered brokerage account.

I estimated lifespan and replacement cost for those items to determine how much to set aside annually. Quite likely my estimates will be off, but better to estimate and set something aside, rather than not have anything saved for such eventualities.

I use VPW for determining annual spending, and the amount in this fund gets subtracted before determining my VPW withdrawal.
bloom2708
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Joined: Wed Apr 02, 2014 2:08 pm

Re: “Fund bucket” for new car?

Post by bloom2708 »

Make another savings account. Label it "car fund". New accounts are free.

If you are organized/disciplined you can do it in a single account.

I see posts where people have $85k in cash/savings account. That is the Emergency Fund, Car Fund, House Down Payment Fund, Taxes Fund.

OK, but if they go buy a house and put down $75k, you just used up your car fund, taxes fund and most of your Emergency Fund. :annoyed
BuckyBadger
Posts: 1221
Joined: Tue Nov 01, 2011 11:28 am

Re: “Fund bucket” for new car?

Post by BuckyBadger »

bloom2708 wrote: Thu Apr 12, 2018 8:05 am I see posts where people have $85k in cash/savings account. That is the Emergency Fund, Car Fund, House Down Payment Fund, Taxes Fund.

OK, but if they go buy a house and put down $75k, you just used up your car fund, taxes fund and most of your Emergency Fund. :annoyed
That's not the fault of having one fund. That's the fault of either 1) not having a big enough fund, or 2) not being able to do math.
fredjohnson
Posts: 89
Joined: Fri Nov 15, 2013 6:28 pm

Re: “Fund bucket” for new car?

Post by fredjohnson »

I don't use the bucket approach. Too messy. I just keep cash I need in the next 5 years in one fund---either MM or short muni term bond fund or both and mentally track how much of it is for the next car purchase. When it comes to buy another car I select one based on the cash I've saved in this fund for the car. So, if we saved $30k for a car then that's all I can spend, even if I have $100k in the fund. I never borrow money to buy a car.
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