How to self-finance major purchases

My boss (possibly soon-to-be former boss–the parting is amicable if it happens) has an interesting approach to buying cars. He pays cash for the car, then finds out what his monthly payment would be, and deposits that amount in a savings account for five years to pay himself back, with interest. Then he uses the money in that account to buy his next car.

This does two things. When the time comes to replace the car, he has the money. And in the event of an emergency, missing a payment to yourself is very different from missing a payment to the bank. It just means he can’t buy another car as quickly as he had planned. It keeps him from getting in over his head.

He does this with cars, but this would work with other major purchases that you replace after a predictable length of time too, like computers or tablets or furniture. Just use an auto loan calculator, like you would with a car, to figure out a monthly payment to pay yourself back over a certain length of time, then repeat the cycle as needed.

I’d never thought of paying yourself back with interest, but I like the idea.

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