“Out of sight, out of mind”… That’s the typical mindset for most people when it comes to retirement.
Let’s face it, nobody wants to part ways with the money they have NOW to prepare for a future that’s sometimes years or even decades down the road.
People want to live in the moment, but when you take a step back and add up the costs of doing so, it may make you reevaluate your purchasing decisions.
No, I’m not talking about spontaneous shopping sprees or indulging in some fine dining from time to time. While these expenses definitely add up, I’m more so referring to the recurring, long-term payments, like cars, that you’ve prioritized and committed to.
Let’s take a closer look at how you can streamline your retirement just by changing what you drive.
Did you know that the average car payment in the U.S. is $523?
If you ask me, that’s a relatively steep chunk of change to cough up every month, but it’s necessary if you need a vehicle to get you from point A to point B.
The idea is to pay this money in increments until the total cost of the car is paid off. A process that usually takes around 5 years or so to complete.
The thing is, most people are already looking for a new ride before they’ve fully funded their old one.
It’s why 107 million Americans have auto loan debt. That’s about 43% of the entire population!
Interestingly enough, only 37% of U.S. citizens are saving for retirement… It just shows how these particular expenses are being prioritized.
In reality, these car payments could be preventing you from investing in the future.
If you look at the bigger picture, $523 per month comes out to $6,276 a year. Considering a Roth IRA has an annual contribution limit of $5,500, one year of car payments is more than enough to max out this type of retirement fund.
Between the ages of 30 and 65 years old, people are more focused on paying off their vehicle loans than preparing for retirement.
But just opting-out of a new car over and over again can significantly contribute to your future retirement.
Over the course of this same 35 year period, a household with two cars would add up to a total of approximately $450,000. However, if those monthly payments were invested at 5% annually, you’d have an additional MILLION dollars to work with by the time retirement rolled around!
The next time you find yourself chipping away at your recurring car payment, ask yourself: “is it really worth it to be paying over half a grand each month just to drive a new car?”
At the end of the day, the choice is yours.
Just know that there’s always the option to stick with the one you bought three years back and start funneling the savings into a retirement account instead.