by beconrad

It is a great feeling to finally be making that last car payment. You now own the wheels you drive free and clear, with no more loan and no more monthly payments. You might be tempted to go on a shopping spree with the money you will be saving, and enjoying a one time splurge is certainly a great idea. But after the dust has settled, a smarter strategy is to continue to make those monthly payments — to yourself.

Paying off a car loan, or a home equity loan, or even a mortgage, presents you with the perfect opportunity to beef up your emergency fund or work on your investments. After all, the money you were paying to the bank is already part of your monthly budget, and you have already learned how to live without it. Diverting the money you would have spent on your car payment or other loan is a relatively easy — and relatively painless — way to save for the future.

Put Your Savings on Automatic


So after you pay off your car or other big ticket item, take a month or so to celebrate your good fortune and your wise financial decisions. Treat yourself so something you had always wanted but been unable to afford. But after you do that, take the time to sit down and create an automatic investment plan that allows you to pay yourself first.

If you already have mutual fund investments, ask for an automatic investment form you can use to make consistent monthly investments in the fund. Fill the form out and divert the same amount of money that was previously dedicated to the car payment. The money will then be taken directly out of your bank account each month, just as it was when you were still paying off your car.

Putting your savings on automatic this way has a number of important benefits. For one thing, it instills the discipline you will need to build up a solid nest egg for retirement, the education of your children or another worthy goal. Finding the money to save and having the discipline necessary to put that money aside month after month can be difficult. By using the same money previously dedicated to your car payment, you can overcome both of these obstacles at the same time.

If you choose to invest your money in the stock market, automatic investing has another important benefits. When you invest the same amount of money month in and month out, no matter what the market is doing, you inevitably smooth out some of the bumps associated with stocks. This means you buy more shares when the market is in decline, and fewer when it is on the rise. This ”buy low, sell high” strategy is at the heart of successful investing, and by investing consistently over time you can put it in action.

So do yourself a favor. When you pay off your next loan, keep making those monthly payments. By investing the money in your future you can build up a substantial nest egg and increase your financial security immensely.