By Carla Fried

Rate.com (TNS)

Saving money is increasingly a way-too-big ask for many households. Nearly 1 in 4 households say they have no emergency savings. Few report being on track with retirement savings. And rising home prices make it hard for many renters to think they will ever pull together a down payment.

To be sure, wage growth has been anemic for years, making it hard, if not impossible, for many to make ends meet, let alone save.

However, plenty of households seem to be literally driving themselves into financial trouble.

According to Experian, the average monthly loan payment for a new car is $525. That would fatten an emergency fund quickly and do wonders for one’s retirement prospects. Contribute $525 to a Roth IRA for 12 months, earn a compounded 7% annualized return for the next 30 years and you’ve got yourself nearly $50,000 in tax-free dollars for retirement.

Manage to save that $525 a month for the entire 30 years, and you’re going to have around $640,000, assuming the same 7% annualized gain.

Now want to reconsider your car outlay?

Nevertheless, many households are in a near-perpetual cycle of car payments. On average, new loans last 69 months; nearly one-third of new car loans exceed 73 months. And though new cars are built to last, a report from IHS Markit a while back reported that we hold on to cars for just 79 months.

That suggests plenty of households make a big car payment for nearly six years, take a loan breather for a year, and then dive back in with a new car and new loan.

Leasing: The car payment treadmill

It’s even worse for leasers, who now account for nearly one-third of the new-car market. With a lease, there’s rarely a payment vacation. A standard lease is three years, at which point most people turn in the car and lease a new one, a state of perpetual car payment.

The average monthly lease payment is $430, according to Experian. Consider a nine-year cycle, where you lease three times and have a constant monthly payment of $430.

If you instead choose a car that you could pay off with a four-year loan at $430 a month, you would have five years of no payments. Save that $430 a month for five years and earn 2% — what you can get in a safe online savings account — and you will have more than $27,000. Sure, there will be maintenance costs during those five years, but they aren’t going to be anywhere near $27,000.

With an extra $20,000: plump up your emergency fund; make a down payment on the house you currently are convinced you can’t afford.

A five-year stretch of no payments could do wonders for your retirement, too. Let’s assume you save $430 a month in a Roth IRA. If it grows at an annualized 7%, you will have more than $30,000 after five years. Keep that money growing in the Roth IRA for another 25 years — with no new contributions — and the fund will be worth more than $165,000.

Self-deception at work?

Many millennials say they can’t imagine ever affording to buy a house. Yet that age bracket accounts for 23.6% of luxury car purchases, Experian reports, up from 17.4% three years ago. Are we consoling our renter-for-life selves with a $40,000 car?

Ready for a rethink on your car budget? Here are some ways to do it.

• Resist long-term loans. Back in the 1970s, the average car loan was for three years. Stretching out payments over a longer period makes little sense when what you’re buying is destined to lose value — and from day one your car loses value.

Financing a home with a 30-year mortgage is rational given the likelihood your home’s value will grow over time. Tune out the ads: There are plenty of new cars that can be had for less than $20,000. At current interest rates — and a 10% down payment — that works out to a monthly payment of $400 or so for a four-year loan.

• Pass on the tricked-out features. Auto companies lure you in with what looks like an affordable base price, then tempt you with costly features. The Ford F-150 pickup can cost anywhere from around $28,000 to north of $60,000. There’s a lot of retirement savings buried in that range.

If you can wait a bit, shopping a few months ahead of when you want to take delivery can help you avoid the temptation to jump at the feature-laden expensive inventory that dealerships stock. Order your less tricked-out car and wait for delivery.

• Consider used cars. Take advantage of the poor choices that leasers make. They pay for a new car, and trade it in after three years, creating a large fleet of still-reliable cars. Buying a two- or three-year-old car can save you 40% or more, with plenty of reliability left.

• Keep it longer. Technological advances mean cars remain reliable for a long time. The average car on the road these days is more than 11 years old. The longer you drive your car, the more payment-free months you have to rev up your savings. Added bonus: Your insurance premium drops as your car ages.

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