1/4/2013 7:45 PM ET|
Your car is wrecking your retirement
So, how much is too much to spend on a car? Some credit counselors suggest car costs shouldn’t exceed 20% of your after-tax pay, but that figure could still be way too much if your living costs are high.
My rule: If you have a car payment and you aren’t saving for retirement, you probably spent too much on the car.
Here are some ways to reduce car costs to free up more money for the future:
- Consider alternatives. In many urban areas, it’s quite possible to forgo owning a car altogether, thanks to public transportation and rental agencies or services such as Zipcar. Even in some suburban areas, it may be possible to get by without a car or with one fewer car.
- Buy used. New cars are a luxury, and luxuries should be paid for with cash. If you can’t pay cash for a vehicle, let the other guy take the new-car depreciation hit. If you’re nervous about buying a car you didn’t break in, go for a certified preowned version.
- Hang on to your cars longer. With proper maintenance, today’s better-built cars can last more than 200,000 miles. Make sure your current car is paid off and that you have saved a substantial down payment on a new one before you start thinking of replacing it.
- Keep loans short -- and cheap. If you can’t pay cash, line up financing before you ever set foot on a car lot, recommends Phil Reed of Edmunds.com. Credit unions often have the best rates and terms. If you can’t pay off the car in four years, you probably can’t afford the car.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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What kind of car is Val driving with $678 per month payment? If Val makes $2000 per month, she has no business driving a $678 per month vehicle. What Val needs is a brain, not saving plan
What's sad is the only people who read this article are the ones who already know this is stupid.
I feel like my wife and I are going to be lonely in retirement because friends my age are not saving for retirement.
I made that vow and kept it years ago and I've never regretted it.
Now, my house is paid for, my two cars are paid for and I live quite comfortably on my $1300 per mo. Social Security.
One does not have to be rich to enjoy retirement.
Money in a CD makes your percentages. You might try corporate bonds at 5.25 to 7.25%. You might try annuities for the long haul at 4%. You might try I shares at 5.25 to 6.75%. You might want to invest in Kinder Morgan for a 5.75% return. Investment strategy is making money in a bad economic market. Making it in a good economic market is easy when saving rates are 6 or more percent. It has nothing to do with the government, economy, job market, politics and so forth. Almost $700.00 a month for a car payment? There are really good autos available for under twenty thousand dollars with five year payments under $400.00 a month. Don't know what this gal drives however it seems a bad purchase based on her income.
"it's easy to forget one basic rule of the financial world: Just because a lender will approve you, doesn't mean you can afford it.”
AMEN!!!!!!!!! This is the MAJOR Problem in America right now. 90% of the people who credit carded their way into what they think is the "Middle Class" are in fact one or two paydays from the poor house, because they think they can afford stuff they can't!
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