Dear Dave,

I decided a couple of years ago to start following your plan. Part of getting out of debt for me included paying off my car. I’m taking your advice, and saving up to pay cash for my next vehicle. I know you like mutual funds, so should I put the money I’m setting aside for that purchase in a mutual fund?

Corey

Dear Corey,

I’m glad to hear you’ve decided to get control of your money. Mutual funds are great for long-term investing, and by long-term investing I’m talking about a bare minimum of five years—preferably 10. But I wouldn’t recommend them as a way of saving up for a vehicle purchase. The problem with mutual funds, in the type of short-term scenario you’re talking about, is they can go up, or down, in value. 

I’d suggest a simple savings or money market account when it comes to stashing the money you’re saving for a newer car. They don’t pay much in terms of interest, but your money will be safe, and you won’t have the ups and downs of the stock market to worry about.

Did you know the average monthly payment in America for a new car right now about $554 a month? It makes my head hurt to think about that much cash flying out the window every month on something that’s dropping in value like a rock. Even if you just stashed that kind of money in a shoebox you’d have over $6,600 saved in just a year. And despite what some people say, that’s enough to buy a dependable, pre-owned car.

Stick with the plan, Corey!

—Dave