How to Turn Your Car Payment Into a Million-Dollar Retirement.

How to Turn Your Car Payment Into a Million-Dollar Retirement





Do you ever feel like you’re out of cash before your paycheck even clears the bank? If so, you’re not alone.
A recent CareerBuilder survey found that three-quarters of Americans live paycheck to paycheck—and that money crunch affects their ability to build a bright future. Cost of living is the top reason people don’t save more for retirement, according to Ramsey Solutions research.
These statistics come as no surprise when you consider that we owe more than $1 trillion in car loans alone, according to Experian Automotive.
What would happen to your retirement outlook if you got rid of your car payment? Is that goal even possible? Let’s take a look.

Americans Spend More and Pay Longer for New Cars

Each quarter, Experian Automotive releases data on the latest car financing trends. Their most recent report provides an unsettling look at how Americans fund their new rides:
  • Nearly nine in 10 new cars are purchased with borrowed money.
  • The average new car loan totals $30,621 with payments of $506 at 4.74% interest.
  • The average new car loan term is 68 months—that’s more than five and a half years! 
  • Six- and seven-year loans now comprise 32% of purchases, making them the second most popular choice for new-car buyers.
Take a moment and put yourself in the shoes of the average car buyer. In the best-case-scenario, at the end of 68 months, you’ll have paid more than $34,000 and have a car that’s now worth maybe $12,000. If you opt for the seven-year option, you’re out at least another $1,000 and your car is worth even less.
Human nature being what it is, you’re not as impressed with your ride as you were so many years ago. So you go out and buy another new car, and the process starts all over again.

How Your Car Payment Destroys Your Retirement

This never-ending cycle means you’ve permanently dedicated a chunk of your income to car payments. But it’s not just the $500 a month in car payments that’s eating away at you. It’s the fact that you know by sending that money to the bank, you can’t use it to build up any savings for retirement—and you’re right to be concerned.
Simply put, if you didn’t have a car payment and instead worked with a pro to invest that $500 a month in your 401(k) or Roth IRA, you could retire with more than $1 million after 30 years. That would certainly go a long way toward closing the $4 trillion retirement savings gap Americans are currently facing, according to the Employee Benefit Research Institute.
The good news is you can stop the car-buying cycle and start saving for retirement. It will take some sacrifice and a lot of discipline, but it’s worth it all to change your future.

Eliminate Your Car Payment Forever

Let’s say the paid-for car you’re driving now is worth $12,000. Instead of taking out another loan to buy a new car, stick with this car a little longer. Save your $500 car payment in a good money market account specifically for car replacement, and in two years, you’ll have $12,000 cash plus your trade-in to buy a nicer, new-to-you car without a loan.
Now that you’ve learned how awesome saving money can be, you don’t mind driving your current car a little longer while your car-replacement fund grows. Keep contributing $500 to your car-replacement account for another three years, and—in less time than it would have taken you to pay off a new car loan—you could have nearly $31,000 plus your trade-in to buy a new car.
Of course you don’t have to use all of that to find another great used car, so you leave a sizeable balance in your car-replacement fund to keep growing until your next car purchase. At this point, you stop contributing to your car-replacement fund and put that $500 toward retirement instead.

Can This Plan Work for You?

Getting rid of car payments forever might sound impossible. But we believe you can do it. And isn’t your future worth it?
No car, no matter how fancy, can give you peace of mind in retirement. That kind of security comes from having a plan and following through with it.
Looking to put your retirement vision into a practical plan.

Source: https://www.daveramsey.com/blog/turn-your-car-payment-into-million-dollar-retirement?             

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