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Money management

Excel vs. Quicken

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So…how’s the bookkeeping working, after a year of using Excel instead of Quicken for Mac?

Last January I switched to Excel for tracking my bank accounts, budget, and credit card charges. After years as a Quicken customer, I’d really lost patience: data vanished in the transfer from Windows to Mac, Quicken for Mac was clunky, and I’d long ago had it with having to upgrade to a pricey  new version every time I turned around. It appears I’m not alone in those sentiments.

Excel has its advantages and its disadvantages vis à vis Quicken. Biggest negative: it can’t talk to your bank or your investment house. Quicken lets you upload and download transactions and data from those august institutions. Nor does Excel care to converse with TurboTax, Intuit’s tax preparation software. Excel talks to you and only to you (or so we hope).

If you want to integrate your bookkeeping with your banking and investing, however, there are alternatives, some of them out there in the Cloud. Programs such as Mint.com (which, alas, was purchased by Intuit), Buxfer, MoneyStrands, Pear Budget, or Thrive sometimes do that sort of thing, and of course Mint will now interact with TurboTax. Not having tried one of these programs, I hesitate to state that any are better, worse, or the same as Quicken. But there they are: something to try if your patience with Intuit wears thin.

Excel has one helluva learning curve, especially for those of us with English-major math skills. After a year of working with it, I’d say my skills are no better than they were at the outset. A year of manipulating Quicken left me with a black belt in Advanced Quickening. However, a rudimentary understanding of Excel’s functions allowed me to build checking and savings accounts and to massage the data into something that I think will be intelligible for my tax accountant.

It’s useful to know that Microsoft now offers a variety of home and office financial  management templates, designed to work with Excel. But it’s pretty easy to build your own.

To build the new Excel workbook, I tried to ape the accounts and functions of Quicken. This entailed creating spreadsheets for each bank account, laid out in identical patterns, plus another spreadsheet for credit-card charges. The latter allowed me to reset the balance each month to the amount budgeted for discretionary spending (which is all that goes on my credit cards), so that the bottom line showed how much was left in any given month’s allowance.

Typical headers for bank account
Tracking credit-card spending against an $800 budget

Come the first of this year, I created what I hope is an intelligible spreadsheet for the accountant by merging data from the credit-card spreadsheet with the bank-account spreadsheet entries and then sorting all the data by category. This made it possible to summarize tax-related data while also making all the year’s transactions, organized by budget category, easily visible and transparent to her.

A number of revelations ensued as I tried to organize this material for the tax accountant. One is that it makes sense to number tax-related categories (1, 2, 3…), so a “sort” command will bring them up at the top of the “sorted” spreadsheet. For example,

1 Medical
2 Mortgage interest
3 Trade group dues

…And the like. When “sorting” data, Excel wants to put numbered items before alphabetical items; so, if you preface each tax-related category with a numeral, the “sort” function will gather all the tax-relevant categories together.

Yeah, I know there’s something called a “pivot report,” and yes, I do suspect it could solve all my problems. However, only a Druid could comprehend the instructions in Excel’s Help file. I gave up after several efforts at trying to call upon those spirits.

In addition to its impenetrability, Excel has the annoying quirk that the (very simple!) formula you enter to create a running balance sometimes comes unstuck for no discernible reason, giving you an incorrect balance. Occasionally I haven’t discovered this until I’ve tried to reconcile my books with the bank’s. Figuring out the problem can be really difficult, because it often results not from incorrect data entry but from some mysterious disjunct between what you’ve asked the program to do and what it decides, midway through the process, to suddenly start doing. When gut instinct tells you something like this is happening, the solution is to go up to a row where the formula is visibly working and then drag the “balance” cell’s qualities all the way down the column. This corrects the error, wherever the heck it started.

We know the irritants presented by Quicken. It’s bloatware. It’s vaporware. The Mac version is clunkware whose files can neither be read by the PC version nor converted to a readable version. Your accountant, you can be sure, uses the PC version. And worst of all, its maker Intuit forces you to buy new, ever-more-bloated versions every time you take a deep breath. IMHO, these are very, very large irritants.

So, of course, is the difficulty of learning and manipulating Excel.

For me, just now it’s a toss-up. For a brief, not-so-shining moment last month, I considered running out and buying the latest version of Quicken to restart my books in 2011. But, on reflection, possibly not. Quicken’s biggest advantage over Excel is its ability to commune with your financial institutions. I’ve never felt moved to use that feature; my financial manager does the buying and selling of shares, and it’s pretty easy to access the credit union, the IRA, and the brokerage accounts online. Comparing and reconciling them is very simple, and I don’t need a piece of intermediary software to perform the desired transactions.

So. To the extent that one can be said to ♥ any software, I suppose I ♥ Excel.

What program do you prefer for bookkeeping, and why?

Financial Planners: The Good, the Bad, and the Ugly

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Over at Bargaineering, Jim asks his readers if they use a financial planner. After starting to scribble an answer, I realized I wasn’t writing a comment; I was writing a whole new blog post. So rather than hijack his comments section, here’s my financial adviser story:

Those of you who read Funny about Money may know about my financial advisers at Stellar Capital Management, and about their amazing revival of my life savings after the trashing by the most recent stock market collapse. Several decades ago, while serving on the board of the Phoenix Chamber Music Society, I stumbled upon the gentleman who is now the most senior of senior partners there. The group had a large endowment that funded its activities. This guy, who had been a financial adviser and a music lover for years, was also a member of the board, and in that capacity he managed the endowment.

Came a serious market crash, followed by a brief recession. Everyone we knew lost their shirts, ourselves included. But the society’s endowment not only didn’t LOSE money, it MADE money.

When I pointed this out to my then-husband, a corporate lawyer, he hired the man forthwith.

After we divorced, I continued to have our financial adviser handle the money I took out of the marriage. I dealt with my sole and separate property myself, mostly by investing in mutual funds and in one half-baked municipal bond.

The municipal bond and the American fund, neither of which performed well, were suggested to me by another financial adviser, a former wife of one of my ex-husband’s former partners, who advertised herself as specializing in women’s finances.

Well, while she was very kind, gracious, and certainly most encouraging to women on their own, her advice was  just barely OK. The American Fund performed adequately but not brilliantly (it was not, we might say, “stellar”), and the municipal bond failed to keep up with inflation while it locked up my cash for a decade.

Meanwhile, back at the ranch… A few years after the divorce, my father passed away. Turns out he deeply disapproved of his 45-year-old daughter deciding what she should do with her life, and so, unknown to me, he contrived to disinherit me. He had told me that when he died, his then-wife would get the interest from his investments until she passed, and then the principal (about $90,000) would come to me. Trusting in this, I factored his promise into my long-term financial plans.

By way of delivering one last slap to the wayward child, he set up a trust that would disburse $1,500 a month to his widow, an arrangement that would drain the principal in about five years. He kept his money in a bank CD, whose return was so small as to be negligible. The widow, as he well knew, was the daughter of a woman who lived to be 102 years old, and so he expected she would easily outlive the money, which was passing directly from her bank account to her own daughter. To frost the cupcake, he made me his executor, so I would be forced to write her a check every month.

So I called my friend from the Chamber Music Society, and that was when I got wind of Vanguard Funds. He advised me to move all the money out of the CD and into a Vanguard short-term corporate bond fund. It was conservative enough that it posed no serious question about fiduciary responsibility, but it made a far better return than the laughable CD. In fact, for every dollar I had to fork over to the widow, the mutual fund returned 50 or 60 cents.

She outlived my father by about six years. Her health had been so exhausted, however, by having to care for my ailing father and by the questionable medical care she got at the life-care community where they lived, that she didn’t make it to the grand old age of 100. Far from it.

Thanks to my financial planner’s advice, even though she should have taken the entire inheritance away from me if things had gone according to my father’s plan, I managed to salvage about $40,000 of its principal. Additionally, my lawyer informed me that I was allowed to draw out an annual executor’s fee of about $1,200, which of course went directly into savings. All told, I rescued a little over $47,000 that would have disappeared without the advice of someone who knew what he was doing.

Having learned about Vanguard, I divided the rest of my non-tax-deferred savings evenly between Vanguard’s Wellington and Windsor II funds. These did moderately well over the years, while the financial adviser was managing the big IRA by investing in a wide variety of securities.

Contrary to our experience in previous bear markets, we lost a fair amount in the fall of the Bush economy, as everyone did. But in 2010 it came back, the rich getting richer as they do and bringing some of us along on their coat-tails. Total investments today are about five times what they were when I walked from the marriage, twenty years ago…not counting the paid-off house.

Along the way, I ran into another kind of financial adviser. At one point, the State of Arizona made a misstep, some charged as the result of corruption, that caused all its employee health-care insurers except Cigna to cancel coverage. None of my doctors would do business with Cigna, which was roundly hated in these parts. My dermatologist so reviled Cigna that he would not let me walk in the door, even after I offered to pay him out of pocket. It’s not easy to find competent medical care in this state, and so rather than discontinue a gynecologist and an internist whom I knew to be very good, I decided to buy private health insurance.

To afford this, I bought into an early health savings plan. In those days, such plans were few and far between, and you had to search out an insurance agent who could sell it to you. Well, after some digging I found one, and he did indeed sell me a health insurance policy.

Then he tried to make a move on my savings.

He told me that he was a financial planner and only sold insurance on the side. He could, said he, undoubtedly help me to earn lots more than I was earning with my present guy. All I had to do was tell him what my assets were, and for free he would draw up a financial analysis.

Right. Having no intention of moving a dime, I allowed the insurance agent to give me his pitch. What he presented was identical to the “analysis” prepared by the feminist CFP, only his style wasn’t as smooth.

I realized at that point that just about anybody can hang up a shingle as a financial “planner” or “adviser.” You don’t have to be a Certified Financial Planner to bill yourself as a financial planner. Nor do those letters after the name signify much more than that you have a bachelor’s degree, that you’ve passed a standardized test, that you haven’t murdered, raped, or embezzled from anyone, and that you’ve worked in the field for all of three whole years. At least the feminist had an MBA!

So. Do I use a financial planner? Yup.

Would I advise someone else to do so? Maybe. I would advise you to be very, very careful. Get references from people who have money—a lot of it—and keep a sharp eye on what your financial manager is doing. Find out, in full detail, how the person is compensated (they work either on commission or fee-for-service).

I review my financial statements in detail every month. Not once a quarter, not once a year, not whenever I feel so inclined, but every single month. I know where my money is invested, I get prospecti from those investments, and I know what those investments are doing over the short term and over the long term. Management of your life savings is not something you should blindly hand over to someone else, even if you think he (or she) can be trusted 100 percent.

Don’t expect to get rich quick, or to build capital without active involvement of your own. Never put all your eggs in one basket. And if an investment adviser comes up with something that’s too good to be true, run! As fast as you can, in the opposite direction.

Budgeting for a Windfall

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Things are looking up. The departmental chair has assigned me not one but two summer courses, God bless him! Even though it appears the magazine writing course will not make, that’s still seven sections for 2011 (assuming three sections materialize in the fall). Pay for seven sections amounts to $16,800, or a net of $13,272. We await the credit union’s offer in the pending renegotiation of the upside-down mortgage on the house M’hijito and I naively got ourselves into, but it can’t be any worse than we were paying before we got the loan modification at the time I was laid off. In the worst-case scenario, I would owe $9,600 in 2010. My teaching income is the sole source now of cash with which to pay my share of the payments. Think of that: $13,272 − $9,600 = $3,672, a nice little windfall!

What on earth am I going to do with $3,672?

Seriously. After a year of living frugally, I actually had to think about how I could spend an extra thirty-seven hundred bucks.

The obvious, of course, is stick it in savings! But in February another unpaid sick-leave reimbursement will come in. It will fund my Roth IRA with about $1,650 to spare; what I can’t put into the Roth will go into the brokerage fund. The net represents 31 percent of net 2011 earned income. So I don’t feel any great urgency to stash the the cash I’ve earned by actually working.

Au contraire. It’s time for me to have a life.

There are a few things I’d like to spend some money on. For example: air conditioning. I do not ever want to have to spend another summer sweltering inside my home with the thermostat turned up so high the activity of tapping on a computer keyboard breaks a sweat.

Then: water. In the summer of 2009, as some of you may recall, I kept a mostly unsuccessful container garden under the orange trees. Because plants in pots have to be watered every day and because I could afford to be lazy while I had a job, I would carry the hose to the pots and set the timer for ten or fifteen minutes…every single morning. The container garden was a fail, but the water bill was cause for celebration down at the city water & sewer department: $214 in July 2009! That’s about $90 over my water budget.

The $214 water bill, as it develops, produced nothing that summer, but it did buy a fantastic bumper crop of glorious oranges. By last February the trees were loaded with big, juicy fruit as sweet as candy.

Last July’s water bill was a far more  modest $96.10. I shut off the drip watering system, dragged the hose to the landscape plants, let the xeric planting in front go without, and most certainly did not indulge in container gardening. Or much of any other kind of gardening, come to think of it.

The result: Tiny little parched fruit on the orange trees. This spring’s crop, what there is of it, is hardly usable.

The fruit took a beating from the hail storm. About a third of the oranges dropped off the trees; maybe half the surviving fruit was all bruised up, left with brown scars on the orange skins. The fruit that managed to cling to the branches is stunted—no larger than a tennis ball, and many pieces smaller than that. While most of the surviving pieces are reasonably juicy, they’re not very sweet. Some are almost flavorless.

Obviously, orange trees need a lot of water to thrive. And since I adore those oranges, I want them to thrive.

The highest electric bill of last summer was $239.08, which was $14 over budget. It was hotter than the hubs of Hades in my house—truly uncomfortable, enough to start me thinking about moving away from Arizona. Supposedly the new hyper-efficient air conditioning will hold the power bills down a bit this year.

Right. I’ll believe that when I see it. The first power bill with that unit in place came to $85.64; the January 2010 bill was $104.34. Difference was only twenty bucks…but then, we didn’t have a hard frost last winter. Until the summer bills come in, we can safely assume the new Goodman will cost about as much to operate as the old Goettl unit did.

So, I figure that to cool the house to a reasonably comfortable state (say, no hotter than 76 or 78 degrees) and to irrigate those citrus trees adequately will take about an extra $300 per month.

Okay. That’s $900 for the three hottest months of the year.

Now. I need a pair of shoes, and I wish to shed the Costco jeans and start wearing some decent clothes. That’ll be $150 for one new pair of pain-frees and let’s say $200 per shopping spree in the midsummer and post-Christmas 2011 sales: $150 + $400 = $550 to upgrade the wardrobe.

The house needs a lot of work. To repair the foundation crack on the west side, repaint the sun-blasted gables, touch up eroded exterior paint, paint the office door (a job that never did get done!), spray-paint the grungy interior of the garage, and build a French drain to direct ponding rainwater water away from the patio will cost about $500.

I need a new pair of progressive shades in the frame style I favor, which I’ve already ordered. Price tag: $720.

And this last week I made a surprising discovery: going to concerts makes me feel happy. Yes. Very happy. Music tameth the neurotic beast. A week of attending Bach concerts every second day left me feeling an unaccustomed calm, unruffled by the usual minor aggravations. As you can imagine, I wish to continue this.

Season tickets to chamber music are $200 for eight concerts, which works out to a fairly reasonable $25 per performance. When you buy them one at a time, it’s $30 apiece. The Downtown Chamber Series is only $10, but they don’t do many performances. The Phoenix Chorale is doing four performances this season plus several special events; prices are $5 less for us old bats, and you can attend their rehearsals for free. The Louise Kerr Cultural Center has a jazz series; price is about the same. The Desert Botanical Garden has its “Music in the Garden” series, mostly jazz. Plus the community college and the university music departments mount performances all the time, at very reasonable prices. So there’s a lot going on. Five hundred dollars would buy two series and entry to a number of miscellaneous events.

Soooo…. What would this spend it or bust budget look like?

Holy mackerel! I can’t even think up enough ways to spend the extra money!

Whence this spectacular new lucre? Well, it’s happening because I finally gave up trying to avoid drawing down retirement savings. The nest egg recovered pretty well in 2010, to everyone’s amazement. Really, I don’t think the boys down at Stellar believed, in their heart of hearts, that the market would come back the way it has. On their advice, I tried my level best to get by on just Social Security and the piddling $14,160 that Social Security allowed me to earn from teaching last year. That was difficult; it just wasn’t enough for me to live on.

With happy days here again (except for the 17 percent of Americans who remain unemployed or underemployed, myself among them), we’ve changed the strategy. Right now I’m spending down the post-tax savings I had accrued before GDU laid me off, to the tune of about $1,100 a month. This should last until September, at which point I’ll start a 3 percent drawdown from retirement savings. That plus Social Security amounts to just enough to meet my base monthly needs. So, everything I earn teaching can be used to meet expenses beyond bare survival.

My initial thought was that the teaching income—virtually all of it—would go to pay the mortgage on the downtown house. And that would have been so under the onerous earnings limitation imposed by Social Security in 2010.

However, in 2011, I’m free at last of the earnings limit.  That allows me to take on two extra courses, about the max the community colleges will hire me to teach. Net income from two extra courses is almost $3,800.

If a miracle happens and the magazine-writing course makes, then I would net about $5,570 more than needed to pay the mortgage.

It’s a miracle!

Now, if I saved the money instead of spending it on myself, in three years I’d have enough to buy a brand-new car in cash, despite the low trade-in value of a decade-old gas-guzzling minivan.

But I figure…what the hell. Since I can’t dream up enough ways to diddle it all away, unspent cash is going to accrue in savings willy-nilly. My car has 100,000 miles on it. The mechanic par extraordinaire thinks it will run to 150,000 miles. That’s five more years. By then, we should have much better choices of fuel-efficient vehicles, and some of them will be a year or two old, available at post-depreciation prices. Hang onto the Dog Chariot until it’s ready to fall apart, and I’ll only have to buy one more car during my remaining lifetime. How to go about paying for this new vehicle is a problem that will have to solve itself when the time comes.

As for how we’ll cover the cost of the mortgage when I can no longer work—about four years from now, by my estimate—fifteen or twenty grand in savings would delay but not solve that problem. The mortgage also is something we’ll have to deal with in due time.

Image: Mitsubishi Electric Car. Tony Hisgett. Creative Commons Attribution 2.0 Generic license.

Ten Ways to Deal with Bag Lady Syndrome

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A comment from reader KML on my recent “bag lady syndrome” piece moved me to think more about this subject. I was going to enter a response as a comment to that post, but by the time I finished typing realized the result was itself a post. And so, more on women’s fear of a destitute old age:

Says KML: Thank goodness! I thought I was the only one who has this “syndrome” I seriously worry about being out on the streets simply bc I am single and have no one to fall back on.  I have a comfortable house, good job and a few dollars in the bank, but I still have this irrational fear.  Thanks for your post, I feel better just knowing that I’m the only one who wories about this. . . .

@ KML: It’s unclear whether a real psychological condition fitting the description of “bag lady syndrome” exists. It’s a pop-psych/pop-soc term. When you try to track down a little science on the subject, the best you come up with is that some psychologists think it’s a type of anxiety disorder.

Well, to my mind it’s perfectly rational to be concerned about whether your resources—savings, Social Security, kids who can help support you, whatever—will cover you until the end of your life, especially in a time when many people now in their 50s and 60s can expect to live into their 90s…and maybe beyond. It becomes a “disorder” when worrying about your financial security begins to inflict damage on your quality of life. Fear of destitution seems to have been observed among Americans , when psychologists Aaron Beck, Gary Emery, and Ruth Greenberg noted that one man anxious about the future was much helped simply by setting up arrangements to care for his family: talking with financial advisers, writing a will, taking out insurance policies.

A father’s concern about the well-being of his wife and children should he die, of course, is different from a single woman’s concern about her own future. To take advantage of a life insurance policy, you have to die…and that seems counterproductive.

However, whether you’re a man or a woman wondering about the future, I do think you can take a number of steps that help to alleviate that nagging worry:

• Plan your retirement income with the help of a financial counselor.
• Budget intelligently.
• Try to get yourself into a paid-off dwelling, if at all possible.
• If that’s not possible, seek comfortable, safe lodging at a reasonable rental.
• Try to get a reliable, paid-off vehicle that will last for a long time.
• As long as you’re physically able, arrange an ancillary income stream with a part-time job or by monetizing a hobby.
• If you can afford it, buy long-term care insurance.
• If you have a partner or a family member who will require care after you’re gone, buy life insurance.
• Schedule time once a month to reconcile bank accounts and pay bills; avoid thinking about finances at other times.
• Get out of the house frequently, so you don’t sit around stewing.

Most of us can do many or all of these things. And really, maybe the best thing we all can do for ourselves is to recognize when we’re worrying to much and decline to continue with it. As Scarlett O’Hara reminded us, “Tomorrow is another day.”

Tax Break Comin’ Your Way! What Will You Do with It?

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Last week President Obama signed a bill that will lower your 2011 Social Security taxes from 6.2% to 4.2%, for next year only. This tax holiday, which, bizarrely enough, will cost the federal government $120 billion at a time when the government is facing astronomical deficits and we’re being told Social Security is headed for Hell on a skateboard, could save you as much as $2,136 next year. If you’re a couple both of whom earn over $106,800, you’ll see a $4,272 tax break.

The theory behind it is that the increase people will see in their monthly or biweekly paychecks will be small enough to look like gravy and so they’ll diddle it away on stuff and services, thereby supposedly stimulating the economy.

Could be. Could be voodoo works to cure warts, too.

I must say, if someone handed me $2,136 it would go straight to savings—even if I were wealthy enough for that amount to apply. O’course, that’s not what you’re going to see in your paycheck; it’ll be dribbled out to you in $178/month increments, or $89 per paycheck if you’re paid twice monthly. Considerably less, actually, unless you earn a top-tier paycheck. In my case, this vast new lucre will amount, over the entire year, to $288.

But let’s say you earn enough to matter. In theory, if you’re earning that much, you ought to be able to afford to spend two, three, four thousand bucks on anything your heart pleases. Two percent of my former, relatively modest salary, for example, would have put an extra $1,300 in my pocket—but in the palmy days when I earned a salary, that was less than I budgeted for the American Express card each month.

Several options present themselves:

1. Diddle it away. We’re told this will improve the economy, making us all richer and happier sometime in the gilded future.

2. Pay down debt, if you still have any after the past few years of our national frenzy to get out of debt. It would make sense, if this is your choice, to figure out how much the windfall will add to your paycheck and set your online bank account to automatically pay it to the creditor that holds your largest or your highest-interest debt.

3. Set it aside to buy a big-ticket item, thereby keeping yourself out of future debt. A couple thousand bucks would buy you a nice refrigerator or—yes! a MacBook! Here, too, the smart strategy would be to arrange an automatic transfer of the temporary raise from checking to savings.

4. Donate it to charity. With the de jure unemployment rate still hovering near 10 percent, the de facto rate around 20 percent, and thousands more Americans poised to be dispossessed of their homes in 2011, the civil thing to do would be to put the money where it can help someone else.

5. Save it for retirement. This is just a taste of what we can expect when the Republicans get back into office, which is likely to happen at the end of Obama’s present term. Continued raids on Social Security will kill it fast. If you’re under 65, you’re going to need this money when you find yourself too old to work.

Just now,  my investments are earning between 5 and 7 percent; let’s say that averages 6 percent. And let’s say you’re 35 and you earn enough to qualify for the full $2,136: by the time you’re 65, this year’s windfall will be worth $12,268. If you’re a couple both of whom earn six-figure salaries, you’ll have an extra $24,536 in the community property, assuming you’re still married after 30 years. Ah, the miracle of compounding interest!

If it were me, I’d figure charity begins at home. At the rate we’re going, a person in her 20s or 30s can expect never to see a nickel from Social Security. If you have a Roth IRA, this will be an easy way to fund it. Simply have your bank send the extra income straight to the Roth. Second-best: if you’re not maxing out your 401(k) or 403(b), have your employer increase your contribution from your paycheck. Otherwise, invest it in a brokerage account, also by automatic deposit.

How to Buy Your Next Car in Cash

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Rolls-Royce-Blue-Phantom

The other day while a friend and I were chatting, the subject of buying cars came up. When I mentioned that I pay for my cars in cash, he expressed some awe: the very idea of not having to make car payments was so far outside his ken it might as well have come from Mars.

“Who can pay for a car in cash?” he wondered.

You can. I can. Anyone can.

You may not be able to pay for your present car in cash, but you can pay cash for the next one. Here’s the strategy:

Take the term of your present loan and multiply the number of years by two. Let’s say you have a five-year loan. Five times two is ten years. That’s how long you’re going to keep the car you’re paying on. Fortunately, most cars are now built to last that long, if you take halfway decent care of them—so, plan to change the oil and stick to the manufacturer’s maintenance schedule.

OK. So you make your monthly car loan payments faithfully, as you agreed to do when you bought the chariot. In five years, the car is paid off.

Let’s say you’ve been paying $450 a month toward the loan.

You know… If you can afford to pay $450 a month to a lender, you can afford to pay yourself $450 a month. Right?

So for the next five years, the remainder of the time you’ve scheduled to drive your now paid-for clunk, what you’re going to do is arrange an automatic transfer of $450 a month into savings.

In five years, when your car is ten years old, you’ll have $27,000 sitting in your automobile purchase savings account. Your car will have some resale or trade-in value—my ten-year-old Sienna, for example, is worth about $5,000. Let’s say yours is comparable: you now have 32 grand with which to buy a new vehicle.

When you do buy the new car, even though you’re paying in cash, figure out what monthly payments would cost if you financed the thing. Take that amount—the new theoretical payment—and put that amount aside over the length of the theoretical loan. In three years or five years, once again you’ll have all you need to buy a new car. Now you can purchase new or new-to-you cars more often. If you decide to drive a car for its entire ten- to fifteen-year lifetime, you’ll have a period in which you need not deduct anything for the future vehicle from your pay.

And you’ll never be saddled with a car loan again.

What if you’re already a couple of years into a five-year loan? What does the math look like then?

It should be about the same: you’re going to keep the car for ten years. After the loan is paid off, you’ll just keep on making those payments, only to yourself instead of to some lender.

What if you pay off the loan early? Bully for you: you can either buy another car sooner, or you can keep the car until it falls apart like the Minister’s One-Hoss Shay. The second strategy will give you a longer period either to save up more money for a fancier ride or to float without having to take the car payment money out of your income.

My first post-divorce car was bought on time. Being averse to loan payments, I paid off the loan as fast as I could. Because a substantial part of a car payment can be interest (less so these days, but when the economy was strong lenders soaked a fair amount of interest out of car buyers), paying toward principal accelerates the pay-off date. By paying a little extra toward principal each month and then taking every windfall (tax refunds, credit card rebates, yard sale proceeds, whatever comes your way) and throwing it into the principal, too, I paid off a five-year note in 18 months.

Then I started paying myself. I didn’t keep the money in my bank accounts, because it would be too easily accessible there—too tempting. Instead, I banked it in a Vanguard short-term corporate bond fund, which I was less likely to raid for indulgences or emergencies. This rather stodgy fund was safe enough, and it earned more than a bank savings account would have paid. Today, I’d put it in a money market fund instead, because a withdrawal from the money market is not a taxable event. If you know you’re going to withdraw $25,000 or $30,000 in one swell foop, it’s best to minimize taxes when that happens.

This plan really takes no more self-discipline than you have to muster to make your loan payments. It takes some time, but once you’ve got the loop going, you’ll never have to pony up a chunk of your paycheck to a car lender again.