‘Would I take say half of our already small savings and get something used for maybe 4k off fb marketplace?’: My car needs replacing, how can I afford a new one without making a foolish financial decision?

Hi Money Minder,

My current situation is as follows: I make $107,000 annually, with a bi-weekly gross income of $2,608. My wife receives $1,138 bi-weekly from workers’ compensation. Our monthly bills total $2,385, with a food budget of $900 and a gas budget of $250. We have $8,000 in savings and are aiming to reach $20,000. Our retirement fund is at $112,000, but we also have $75,000 in student loan debt.

Currently, we have two cars, both paid off and seemingly in good condition. However, one car is starting to show its age and may need replacing if a repair bill exceeds $3,500. With our financial situation in mind, how much would be a safe budget for a replacement?

Should I use half of our modest savings to buy a used car for around $4,000 from Facebook Marketplace? Or consider financing a newer vehicle, considering my credit score is around 800? The newer the car, the better the interest rate, but it will be more expensive overall. I am looking at an auto loan for a maximum of 36 months for a reliable, safe, and fuel-efficient car.

While we would prefer to have two cars, we are expecting our second child in a week. We could potentially manage with one car for a while until we save up enough for a better cash position on a vehicle.

Any thoughts, suggestions, or guidance for our next steps?

Farewell,
Financially Focused

Response from THE MONEY MINDER:

Hello There,

Congratulations on your growing family and on diligently managing your finances! It seems like you have a good grasp of your current financial situation, which is a great foundation to work from. Considering the possibility of needing to replace your aging car, it’s wise to plan ahead and explore your options.

Given your set monthly bills and savings goal, dipping into your savings for a potential car replacement might not be the most optimal choice. It’s generally recommended to have an emergency fund equivalent to at least 3 to 6 months of your living expenses. If your savings are still a work in progress, it might be beneficial to hold onto it and look at alternative solutions.

One practical approach could be to consider exploring the used car market for a reliable vehicle within your budget. Looking at options on platforms like Facebook Marketplace can sometimes yield great deals. With a good credit score like yours, you could also explore financing options with a manageable interest rate. Opting for a shorter loan term, like 36 months as you mentioned, can help reduce the overall cost and ensure that you’re not tied down for an extended period.

While having two cars is ideal for your family’s needs, it’s understandable if you need to prioritize and potentially go without a second car temporarily to build up your savings for a more secure position on a replacement vehicle. Being open to different possibilities and considering the long-term financial impact can help you make a well-informed decision.

In the end, it’s essential to weigh your options carefully, considering factors like affordability, reliability, and your long-term financial goals. Taking a practical and cautious approach can help you navigate this potential situation smoothly.

Best of luck in finding the best solution for your family’s transportation needs. If you have any more questions or need further guidance, feel free to reach out for assistance. Farewell from THE MONEY MINDER.