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Dave Says: Saving for the Next Car

8741   Dear Dave,

   I finally paid off my old car, and now I’m taking
   your advice and saving up to pay cash for a newer
   one in the future. Where should I put the money I
   plan on saving for the next five years. Would a
   mutual fund be a good idea?

   Kristi

   Dear Kristi,

   I love that you’re going to save up and pay cash
   for your next car. But the problem with mutual
   funds is they go up and down in value. I love
   mutual funds for long-term investing, and by this I
   mean a bare minimum of five years. Still, I
   wouldn’t recommend them as a method of saving
   for a vehicle purchase.

When it comes to saving up for a car, I’d suggest a simple savings or money market account. They both pay next to nothing in terms of interest right now, but at least you’ll know your money is safe and not going down in value. You won’t be worrying about the ups and downs of the stock market or whether or not you can actually get a better car just because some clown on Wall Street flipped a switch.

Did you know that the average car payment in America right now is $487? Even if you hid that money in a cookie jar, you’d have nearly $5,000 in just 10 months. And despite what a lot of people say, you can still get a decent little used car for that kind of cash.

It’s like grandma always said, Kristi. “Save up and pay for it!” If you don’t have the money to pay for something in full, then you can’t really afford it.

—Dave

Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 5 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
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