If your retirement years are right around the corner, you may be searching for ways to accelerate your savings. Once your kids have flown the nest consider selling the second car and keeping your first car longer. The minor inconvenience of sharing one car could help you save money — money that could help you retire sooner or more comfortably.
Middle-class Canadian families spend about 20 percent of their after-tax income on transportation. Factoring in depreciation (the reduction of the car’s value over time), owning a vehicle could be costing you anywhere between $8,600 and $13,000 each year. And that’s thousands of dollars you could be contributing towards your retirement savings.
Before listing your second car online, consider the realities of your lifestyle and work life. Why do you have two vehicles? If the second one was used mainly to ferry kids around to extra-curricular activities, you may not need it. If you each depend on a car to get to work, list your other transportation options along with how much each cost. Depending on your career, employer, and home and work locations, you could have several less-expensive alternatives. Maybe you could work from home a few days a week. Perhaps you could carpool with your spouse, neighbour, or co-workers, or even take public transportation. If your work is nearby, get exercise and save money by walking or biking.
Do you know how much it costs your own household to keep that second car? If not, calculate a simple estimate (note, this does not account for depreciation). List the monthly amount of your car insurance, car loan payments, cost of fuel, and your regular maintenance and repair costs, such as oil changes, new tires, repairs. Next, compare the total against the cost of alternative transportation, such as public transit fees. If you catch a ride with your spouse, your only additional cost could be fuel if dropping you off at work adds to his or her daily commute. Finally, calculate how much money you could invest for retirement by trimming your car expenses. For example, if you save $3,000 per year in after-tax dollars by selling a second car, and you’re in a 40% tax bracket, you can contribute that $3,000 to your RRSP. This could generate a $1,200 tax refund. So right off the bat, you have $4,200 plus your investment return. And if you also invest the sale proceeds from the second car, your retirement savings plan could really get a boost.
Another way to trim your car costs is to hang on to it longer. According to recent data from Consumer Reports, proper maintenance (scheduled oil changes and parts replacement) can help you keep your vehicle running up to 200,000 miles — that’s almost 322,000 kilometres. Even better, the report says that keeping your car could save you up to $30,000 (in U.S. dollars) over the 15 years it would take to reach that mileage.
The bottom line when it comes to saving money on your vehicle costs is this. Become a one-car family, maintain your car, and keep it longer.