Page 3 - Spring 2019 Destination: Retirement '77 Fund, JRS, PARF, EG&C

SPRING 2019
TIPS TO SAVE FOR YOUR NEXT CAR
Purchasing a car is one of the biggest investments you will make throughout your lifetime. Next to your rent or mortgage, a car loan is typically the most expensive monthly bill you have. Although you may be able to find a zero interest car loan, the average car loan rate is approximately 4.87 percent - 5.45 percent a month (Bankrate1). You may not be able
to avoid the expense of a car, but often, you can minimize the financial impact of car ownership.
1. Don’t buy more car than you can afford
Some financial experts say your car payment and all other automotive expenses shouldn’t be more than about 20 percent of your take-home monthly pay (Bankrate1).
If you make $45,000 a year, your take-home pay is probably around $2,600 per month. 20 percent of $2,600 is only $520 - and that has to account for everything: car payment, insurance, gas,
and maintenance.
2. Consider used cars
Used cars are less expensive than new cars and a new car loses its value as soon as you drive it off the car lot. Edmunds.com puts the first year depreciation on a new
car at 22 percent. During years two through four of your new car ownership, you can expect its value to decrease 12 percent each year. Buying a used car that is one or two years old, can save you up to 25 percent (USA Today2).
3. Set money aside for your next car
Once the car you are currently driving has been paid off, consider saving the amount you have been paying. Instead of paying the lender, you are paying yourself and avoiding future interest. If you continue to drive the car for a few years past the payoff date, you could have several thousand dollars set aside when you’re ready for your next car. Here’s an example:
Your current car payment is $300 each month. You pay this car off and, instead of spending the extra $300 a month that you now have, you put that money into an interest-earning savings account. If you drive your car for four years after it has been paid off, your savings could total more than $14,400 that you can use toward your next (used) vehicle.
1Bankrate – https://www.bankrate.com/loans/auto-loans/current-auto-loan-interest-rates
2USA Today– https://www.usatoday.com/story/money/personalfinance/2016/11/21/used-car-deal-shop- save/93660520/2
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