Since Oprah stopped giving cars away in 2011, we recently had to face the challenge of getting our daughter a better vehicle. While her getting older and purchasing this car should have come as no surprise, it came faster than we wanted (we should have started earlier!!) and I wanted to share a few things we did to prepare for the purchase of the car.
Utilizing Savings
Fortunately, when she was younger we started saving money she received for Birthdays and Christmas. At the time, we did not designate it as car savings but we knew one day it would be used on her. Consider this option when children receive cash as a gift.
We eventually designated this account as the car savings. This decision helped us save even more and gain the momentum needed. It is easier to save for something when there is a specific goal in mind.
Throwing all Extra Funds into the Savings
Since she was able to work while going to school, she has been able to save money. Any extra cash she had, she threw into the savings account.
As parents, we decided to participate in the momentum and began matching her savings. We were able to encourage her by adding to her savings when we were able.
Create a Physical Savings Chart
There are a ton of printable savings trackers online and you can fill them in as you go to track progress.
It is also a constant reminder of the end goal and will help maintain unnecessary spending on other things
When the time arrives to Purchase, Choose a Budget!
There is no right or wrong here, everyone is different. But it is important to decide ahead of time or that new car smell will play with your emotions.
One school of thought is: the total value of all your vehicles should not be more than half of your annual income. (If you own 2 vehicles that are worth $20,000 each, or $40,000 total, your annual income should be at least $80,000.)
As a couple, we sat down and talked about what we agreed was a fair amount to spend on a car for a 17 year old student.
Involve your Teen in the Purchasing Process
Begin by looking both online and in person. You want to teach your teen how to make an informed decision on type and price.
Researching ahead of time plays an important role in the safety of the vehicle and the purchase price.
Starting early helps control an emotional purchase. When you are not in a hurry, you can make more informed decisions.
Utilize a Teachable Moment
As a CERTIFIED FINANCIAL PLANNER™, I know the importance of teaching money lessons to kids at an early age. Use this opportunity to teach them about the true cost of vehicle ownership.
Teach about auto loan interest and financing options.
Share your philosophy on borrowing. Include co-signing, who makes the payments, and what happens if you do not make the payments.
Don’t forget to talk about the forgotten costs of vehicle ownership, such as insurance, maintenance, and fuel.