Frugality is the first step in investing and saving..... The Car
The average car payment is $480
So you're going to start investing and making millions right?
Well, first you need to have money to invest or save. That is a often missed point for the making money equation. It seems pretty obvious when you think about it but it isn't often practiced. It does not matter whether it is a house that is too expensive, eating out often, buying all types of toys, or..............You guessed it cars.
Some people will say a car is an investment. It is proven that if you are in sales or your bailiwick is in impressing people, people will judge you by the car you drive. The point is not what type of car you drive but how it compares to your strata or your standard of living. Simply........Are you living within your means?
How much money do you spend on your vehicles?
For a family with two cars it can easily be $1000 a month and with insurance it can be well over $1200 a month. Now while this does not sound that bad, for a family earning $50,000 a year, this can easily be 1/3 of the take home money for this family.
Lets see how this works:
A family with a $50,000 income will pay $3750 in FICA and lets assume $2000 in income tax. This gives a family income of $3687.50 per month and $1200 is 1/3 of this amount. Now for many people this can create a huge debt cycle that is inescapable.
A person needs to understand that a portion of the money that he earns must be saved and debt is something that keeps perpetuating itself. A car is a place that a person can actually get some traction and get ahead in life.
A car is a basic necessity right? So what can be done?
1) Buying a 3 to 5 year old car. A very reliable car can be bought that is 3 to 5 years old. Many of these cars can be up to 1/2 the cost and even less compared to that of a brand new car. When a new car is bought it loses its value right after it is driven off the lot. I will do a hub on looking for and purchasing used cars.
2) If a person does not finance a car they can save $5500 on a five year loan. That is for a average car of $25,000 and at a rate of finance rate of 8%. Many people pay far more based on their credit scores and on also many people finance cars that have a much higher price. 8% seems innocuous but it isn't. The numbers can be daunting. A person can only invest after they have saved money. You only get 2% in the bank and many car loans will charge rates that are in the double digits. Paying cash is smart!
3) Using public transportation and maybe only maintaining one car for a family is a good way to cut down the cost of one car. In Seattle a person can travel 20 miles and back for $4.50 round trip if they take the bus. That is less than it would cost in gas. I have ridden the bus a few times but I am going to try to do it more. This is also a very green way to travel and I will do a hub on riding the bus in Seattle. This will give me motivation so I will ride it more. The bus system is actually very good here. With a savings of over $500.00 a month for a family that would normally have 2 cars, the amount of money can be a lot.
4). A bike or walking is a very good way to save money. Most people will drive half a mile to pick up groceries. Riding a bike 4 to 10 miles each way is not that hard and it is great exercise.
A car can very easily be 1/3 of your take home or even more. A person cannot get ahead with this amount of personal expenditure. I will address more on cars and the next hub in this series will be the home.......Is it an investment.
Keep on saving!