An acquaintance in his early 50s drove himself home with a new blue Porsche convertible, just in time for summer. I asked him a few questions about it, but he quickly said that he is more proud of how he funded it than cruising around town. What was his trick? Did he plunk down cash, or borrow against his house?
He told me that he had around $60,000 saved up in his car fund, plus he had sold some silver. He put all that money into a short-term bond fund with a nice yield paying a monthly dividend. He put up enough of a down payment so that the bond fund dividends covered his entire monthly payment on his 2-year lease. He said, “I’ve never had a sports car and figure the desire will have been burned out of my system by two years. At the end of the lease term, I’ll still have my entire principal to purchase my next vehicle for the long term.
So, his goals were to:
- Have a fun car to drive for a couple years, in the most hassle-free manner
- Eliminate any car payment
- Preserve his car fund balance
I think he did a great job. Of course, no car is free, he did lose out on the opportunity cost of the profit of his fund. However, that is the exact purpose of his car fund, to cover his transportation expense. And he’s grown it large enough that he has some creative options for how he acquires his transportation.