Getting a New Car May Cause a Delay In Your Retirement

A lot of people think that cars are a wise investment. Sometimes, you just gravitate towards the smell of a new car, or need an upgrade from your old reliable vehicle.

However, getting a new car may be the culprit behind the delay in your retirement. This claim may seem farfetched but it’s actually not. People always cite a number of different factors for their inability to save money.

Some blame their bosses, who refuse to give raises and bonuses, and others, the lack of employment opportunities in the market. On the other hand, there are those who go as far as saying that having kids has made it impossible to manage their finances.

Real Reason For Delay In Retirement

Everyone has reasons as to why they can’t grow their wealth. However, most of the financial burden you face is self-inflicted and may have to do with a one factor, and that are car payments.

People complain about not being able to add to their savings due to a number of factors but oftentimes it turns out that car payments are the culprit

A report revealed that there people pay an average of $523 per month for payment on new cars. A car loan usually takes 68 months to pay off, and the average cost of getting a new car loan is $31,453. Monthly car payments may not sound that high but when you add up all the costs, it is a huge amount of money that could have been saved for your retirement.

According to a research, half of the Americans are invested in stocks and bonds whereas only 37 percent of the population has individual retirement accounts. What do these figures have anything to do with buying cars? Americans owe $1.1 trillion in auto debt which shows that despite their economic status, people still choose to get new cars over saving for retirement.

Role of Social Media

Why has getting a new car become such an urgent priority for many? There are a number explanations for it, but one that is very timely is the fact that people are just afraid to miss out on experiences. With social media more popular than ever, people are driven to pursue things that will make them happy for short term only without thinking of long-term goals.

Almost everyone has internet today. Social media has become more than just an avenue to express oneself, it has actually become a status symbol that is seen as a reflection of your financial standing. Besides this, it is a place where people get inspiration from celebrities and try to imitate them. In this case, social media may play a role in influencing people’s decisions in getting new cars.

Social media plays a role in influencing people’s decisions in making short-term decisions

To demonstrate the impact of this on your retirement, imagine that your household has two new cars, assuming that each car requires $523 per month, which equals to $1,046  a month. In a year, the payment will balloon to a little over $12,500. This sum is more than twice the $5,500 contribution limit for individuals to IRA in a year!

So assuming it will take five years to complete the payment for both cars, you will have to cash out at least $62,500 for the vehicles.

Chances are, after five years, your suffering of monthly dues will end, but this will prompt a desire for a newer model again when the time comes, and you end up upgrading once again.

Making a Better Choice

But then again, cars are a necessity for some people. The better alternative here is getting yourself a used car. After all, it still serves its function: it can take you to work or driving your kids to school, not to forget the savings you can make out of the deal instead of purchasing a new car.

For instance, you can get a car with 11,225 mileage priced at $15,994, which means you pay less than $300 a month for five years and when you want to upgrade, you can get the same resale value for the car as the first time you bought it.

Monthly payments on a new car can prevent you from saving up for retirement 

The computation doesn’t get better when you purchase a new car in your 30s. Long story short, the money that should be saved up for your future will end up being used for a new ride – which is an asset that only depreciates in value over time – causing a delay in retirement.

In short, car payments are one of the biggest reasons why people can’t invest in their futures. As harsh as it sounds, this unnoticed factor greatly affects your chances of comfortable retirement.