THE ONE REGULAR BILL STOPPING YOU FROM GETTING AHEAD
Across Australia, families are struggling to get ahead. The rising costs of energy and private health insurance (if you’re lucky enough to have it) are chipping away at your savings.
One area where you could be saving yourself big dollars each month is…wait for it….car repayments.
According to ratecity.com.au a $30,000 loan over 5 years on 9% interest will cost you $623 a month.
Have you ever imagined what you could do with an extra $623 per month?
Thanks largely to advertising we’ve become socially conditioned to believe we deserve that new car and that we’ve “earnt” it.
Ads for 4WD’s depict the driver conquering any terrain easily while people mover ads show vans full of families, pets and stacks of luggage heading off on some adventure made all the more exciting because of their great vehicle.
Let’s say you buy your first car at age 20 and settled on a $623 car payment for your working adult life.
You would trade your car in over the years, but you would always have that payment. Each time you paid a car off, you would head straight to the dealership to pick up a new one.
If you did this for 45 years until retirement at age 65, you would fork over $336,420. What would you have to show for it? Remember, this doesn't include on-going maintenance or insurance expenses.
So why do we do it? Well there are a few reasons:
We’re conditioned to gauge affordability based on a monthly payment – not on the overall costs of a car.
It’s also a matter of instant gratification. If you want that shiny new Audi your neighbour just bought, you can head over to the local dealership and walk out a few hours later with your own A6. Watching your retirement account grow isn’t nearly as exciting or rewarding in the short-term.
Buying a new car is fun, not only do you get to enjoy that new car smell but it feels soooooooooooo good to drive your new car off the lot and cruise down the street.
Unfortunately, that’s the short-term talking. After a fairly short amount of time, the new car excitement turns into a mundane, uneventful reality. Once your car isn’t new anymore, it’s just something you drive to your kid’s soccer practice.
If you want to do something different and get absolutely rich in the process, you have to change your new car mindset.
Here are some tips that can help you find a better deal on a car – and grow your wealth faster:
Tip #1: Get your financial house in order first.
“If the foundation of your financial house is not in order, getting into a high car payment or lease should be the last thing you consider,” says financial advisor Jamie Pomeroy. Have 6-9 month’s living expenses saved up as an emergency fund? Are you free of consumer debt? Are you contributing to your super? “If not, avoid that high car payment at all costs,” he says.
Tip #2: Only consider used cars.
“Set yourself a strict budget” says Malcolm Flynn from CarsGuide.com.au remembering that the purchase price is just the start. Do your research - CarsGuide.com.au can help you get an idea of what vehicles are available within your price bracket. There are thousands of vehicles for sale to choose from, and there’s a handy value guide to help you know what to pay. Be careful of cars that seem too cheap though. If something appears too good to be true, it probably is.
Tip #3: Think in terms of your total income.
If the average household income in Australia is around $52,000 per year (2014-15 ABS), then a $623 monthly car payment represents 14.3% of your income! If you throw in fuel and maintenance, your transportation bill could easily be 15-20% of your total pay.”
The lesson here? No matter how much you make, $623 per month is a huge chunk of money that shouldn’t be taken lightly.
