How to Pay Cash for Large Purchases

Yesterday I challenged the common assumption that it’s impossible to make large purchases without borrowing money.

You absolutely can pay cash for large purchases like cars, college tuition, and houses if you want to.

You just need two things: To have your finances in order, and to have a little patience.

Now when I say that you need to “have your finances in order”, I don’t mean that you have to be independently wealthy or anything. You just can’t be in the kind of shape I was in back way back when. So let’s talk about the choices I made that left me struggling so much as save even a dollar a week.

Mistake #1
While in college, I bought a brand new $8500 car by putting a couple of thousand dollars down and then financing the rest. It didn’t even occur to me to buy a used car, or to wait until I had the money for the car. (Which would have been very feasible at the time, since I was living at home and working quite a bit while attending college on a scholarship.) I just wanted a “reliable car”, and I wanted it N-O-W. I really should have kept my old car instead.

Mistake #2
I encouraged my then-boyfriend/now ex-husband to buy a new car too, which was also bought using borrowed funds.

Those two mistakes right there really cost us when we got married — because we ended up spending about 35% of our GROSS income on paying for, maintaining, driving, and insuring those cars. (And my “reliable car” turned out to be very UNreliable.)

That, of course, left us no money. Or rather, a theoretical $1.58 per week. If we hadn’t bought those new cars that we didn’t even need, we would have had close to $650 a month available to save or do whatever we wanted with after we got done paying our bills.

In other words, in two years we could have saved up enough to pay cash for TWO brand new cars if we had wanted to. Or we could have paid cash for two good “beaters” in just 6 months and had plenty of money available if they turned out to need repairs. Like my brand new car did, ALL the time.

In fact, in four years, we could have saved up about $31,000 — nearly the price of the condo we bought shortly after getting married. But instead of being a little bit patient and quickly getting to a very nice financial position, we chose more than a decade of debt and constant struggle.

This is kind of a long way of saying that it’s easiest to pay cash for large purchases if you aren’t already sending a chunk of money to debt because you’re buying things on credit that you can’t afford. So, if you want to pay cash for things (large or small) and you’re in debt, the most effective way to do so is to first stop borrowing money, and then get out of debt. Then save up.

Actively going out and making more money works too, and speeds up the process. You could take on a second job, get a raise, do various odd jobs, or all three.

Now obviously if you want to buy a $200,000 house fairly quickly and you make $22,000 a year, you’re going to have to really focus on the making more money part — or move to an area with a lower cost of living.

Either way, you just have to know that paying cash is possible. Which it absolutely is, if you have a little patience and get your finances in order. Sometimes what looks like the slowest way to what you want turns out to be the fastest in hindsight.


  • Agree. It all depends on how mature one can be when one is just out of college! Hard, not impossible!

    • True, that does play a role in it! But I think also even just realizing that not only is paying cash possible, but *doable* can help a lot too.

  • Well said!

    It’s really hard to start from scratch the first time you decide you should save up for something BEFORE buying it, because you feel like it will take your entire lifetime to collect enough to get the desired (or needed) object. Once you do try it, though, you can be really surprised at how fast the money accrues, even if you can only put a little aside at a time.

    First time I bought a car on time ($300 a month for five years…eeek!), I took it into my head to see how fast I could pay it off. By throwing every spare penny at principal, I managed to clear the loan in 18 months. Then I thought…waitaminit… If I can afford $300 a month for a car loan, then prob’ly I can afford $300 a month for a savings account.

    Yup! The next car, and every car after that, was purchased in cash. Car salesmen hate that… ;-)

    • Yeah it really does add up surprisingly quickly! I think what people forget is that once you start saving up for something, you become inspired to save even faster. I wish I’d had that “waitaminit” moment a lot sooner like you did!