If you have the same priority, then there is one change that you can make in order to quit your day job five years earlier than you had planned. The secret involves the second biggest expense in your life: your car.
So here’s the scoop: The way to change those retirement fortunes is to either keep a brand new car for at least 10 years, or to keep your used car for at least five years. That is it. The secret is out.
According to Edmunds.com your car depreciates 11% the first second it is in your possession. Ouch! The only way to combat the rapidly depreciating value of your brand new car purchase is to hold onto it for a longer period of time.
By the fifth year of ownership your car is worth only 37% of the price you paid when you purchased it new. If you bail out now, you’ve locked in your losses. So hold onto that car for five extra years and you’ll finally start to get your money’s worth.
The second five years are where your fortune turns and fate smiles on you. Since depreciation is actually your largest expense, keep your new car for at least ten years. You’ll get to enjoy a payment-free life for awhile, and that depreciation free fall won’t hit you square in the jaw.
If you decide you are going to be savvy and buy a used car (good move), look for one that has already taken that depreciation hit and hold onto it for at least five years. This game plan will save you thousands of dollars a year over the average car owner. And while you might be wondering about factors such as gas, repairs, and insurance rest assured that an older car balances things out. You might pay more in repair bills but you will also pay less in taxes and insurance.
Let’s do some math. Obviously every car purchase is different and the sticker price for different models vary greatly. Let’s take the average cost of a new car these days — $47,000. If you spent that on your new ride and hold onto it for five years it would now be worth just $17,390. That’s a hit of almost $30,000 hit to the pocketbook.
I am kind of extreme but take a look at my last vehicle purchase. I bought my 2000 Altima in 2007 for $3200. It’s now worth about $2100. Since then I have lost only $1100 in depreciation even though it has cracked 200,000 miles on the odometer. That feels awesome! Spending less on my vehicle ensures that I can sock a lot more away for the future.
The massive money savings you accrue from making smarter choices about what you drive can do some great work for you in your retirement account. Think about socking an extra $25,000 or more away every decade. Doing that will drastically change your financial future and could easily allow you to retire five years earlier than you had previously planned.
So do the math before your next car purchase. Would you rather have a bit more comfort now, or the ultimate freedom that comes with not having to punch the clock when your peers still are?
About the Author: Joel Larsgaard is the proprietor of Save Outside the Box.
Photo Credit: Tax Credits