Thursday , 28 March 2024

Your New Car Today Is Compromising Your Retirement Tomorrow – Here’s Why

Savings statistics in the U.S. are terrible…because, [while] saving money is simple, carsprioritizing is hard. It’s very easy to…cut back on lattes to save money, but those little things…are not going to make a big dent in your budget. To truly save money you have to focus on the big picture issues, including things like transportation and…how new the car is that you own. [Let me explain why that is the case.]

So writes Ben Carlson (awealthofcommonsense.com) in an article* originally entitled How to Save Money & Increase Your Happiness and goes on to say:

What Will Your Financial Resolution Be For 2015?

Mandi Woodruff posted an interesting chart on Yahoo! Finance this week on the leading New Year’s financial resolutions:

Savings Money

What Is The REAL Cost of Owning A NEW Car?

Most people spend more on transportation than they realize. In Happy Money: The Science of Happier Spending, the authors show that the average American worker will work 500 hours a year (or 2 hours out of every work day) to pay for their cars. This all-in cost includes gas, maintenance, plate fees and insurance costs. Because of these costs, the average household spends almost 20% of income on driving expenses. For low-income families it can be as high as 40% of income.

Like This Article on Facebook

Now take a look at the average transaction price of a new car from the Washington Post:

Car Costr

Is the new car smell really worth one-fifth of your income? A 4% car loan spread out over a 5 year term at the average cost is almost $600 a month. This is just an average, but it shows you how high the costs of car ownership can get, and this is before you add in the ancillary costs.

New cars lose around 10% of their value the moment it’s driven off the lot. After the first year a new car depreciates by another 20%. Owning a car for five years leads to an average of a 60% loss from the original value.

Does A New Car Make The Owner Happier?

…University of Michigan researchers looked into this and found that this wasn’t the case when they asked drivers to rate their experience [reporting that]: Although their cars ranged widely in value, from around $400 (a Yugo, perhaps?) to $40,000, there was no relationship at all between the Blue Book value of the car and the amount of enjoyment the owners got from driving it that day.

Subscribe to munKNEE.com’s free Market Intelligence Report (sample here)

In fact, they found that most people liked the narrative of driving a nice car more than the actual driving experience itself. People said they enjoyed driving expensive cars more when asked to describe the make, model and year. But this narrative didn’t translate when they were actually driving. It was more of a status symbol in their head than anything else. As with most things, the novelty wears off from a big purchase sooner than we think.

Shouldn’t One Move Closer to Where They Work?

Another way to cut costs and improve happiness is to move closer to work to cut down your commute. A study showed that your income would need to rise by over a third to offset going from no commute to a 22 minute commute.

Conclusion

I’m not big on telling people what they should or shouldn’t be spending their money on. There are car people out there that absolutely have to have nice cars. That’s fine, as long as you are saving and have the rest of your financial house in order. The goal should be to take care of business up front (automated savings) and be able to spend on anything you want with the rest.

Follow the munKNEE” daily on Twitter

Regardless, focusing on the big picture details – housing, transportation, careers – is much more important for those looking to save real money than cutting back in minor areas.

Finding ways to save money on things like lattes is easy. Prioritizing on the large expenses that actually allow you to save is the hard part.

The above post is presented compliments of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

*http://awealthofcommonsense.com/save-money-increase-happiness/

Post a Comment on this article (Scroll down to bottom of page)

Related Articles:

1. The True Cost of Car Ownership is….OUCH!

We all know that the true cost of a car doesn’t end at it’s purchase price but most people don’t really know what the annual cost will actually amount to. The next time you are shopping for a car consider these additional costs. Read More »

2. Resurgence of Subprime Auto Debt Spells T-R-O-U-B-L-E

During the credit crisis, one of the problems that occurred was that too many loans were being made to people that had no ability of paying their debt back. We see this trend in full stride once again in the auto industry. Subprime auto lending is back in a big way. Why is this happening? What are its repercussions? This article explains. Read More »

3. Driving Less? Vehicle Miles Driven in U.S. Down to Post-Crisis Low (outdated but interesting)

The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through September. Travel on all roads and streets changed by -1.5% (-3.6 billion vehicle miles) for September 2012 as compared with September 2011. The 12-month moving average of miles driven increased a tiny 0.27% from September a year ago and the civilian population-adjusted data (age 16-and-over) has set a new post-financial crisis low of -8.6%. Words: 732 Read More »

4. How Is Your Car Insurance Rate Determined? How Can It Be Reduced?

Insurance companies use 10 factors to determine what you have to pay for coverage. They are identified below along with some suggestions on how you might be able to positively influence some of them to your financial benefit. Read More »

5. How to Make a Rich Retirement Your Reality

Since WWII, we have enjoyed one of the most productive economies the world has ever seen, yet many seniors are broke. When you reach retirement age, you don’t have to be one of them. Below is some straight talk on how to make a rich retirement your reality. Read More »

6. 3 Ways To Manage Your Eventual Retirement

…The Employee Benefit Research Institute surveys workers each year concerning their retirement confidence. Despite an uptrend, the latest report shows that 82% of workers feel less than “very confident” about having enough money to retire comfortably. With that statistic in mind, this article looks at three different 40-year retirement scenarios. Read More »

7. Your Car: Can You Drive Further On An Hours Wages Than In the Past? Check It Out

Someone recently asserted on a site that: “The cost to fuel your car has never been higher as a percentage of disposable income.” I know gasoline prices are high, but I couldn’t accept such a contention without looking at incomes and fuel economy, too. I put together 50 years of pretty consistent data for the key variables and my findings will surprise you. Read on. Read More »

8. 10 Ways To Improve Your Odds Of Not Running Out Of Money During Retirement

A big financial challenge retirees face is ensuring their savings last the rest of their lives. It’s a daunting task for those making the transition into retirement as well as for those already in retirement. While saving as much as possible during your working years is important, the decisions you make in retirement are also very important. Fortunately, there are steps you can take to improve your odds of financial success. Here are 10 of them. Read More »

9. Looking At Retirement & Planning To “Wing It”? Here’s A Better Way

In reality most Americans are winging it when it comes to their retirement plans. The plan for most will be the default with Social Security which was never intended to be the primary source of incomes for millions of Americans. The new retirement is no retirement and working well into old age. If that’s you here is how to avoid such a future. Read More »

10. How Much Investment Income Do You Need to Retire? Here Are Some Guidelines

Here’s an interesting rule of thumb that most retirees and would-be retirees would do well to adopt. Read More »