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How to Buy Your Next Vehicle Without Spoiling Your Retirement Savings

Buying a car is an important financial decision, and it can feel even bigger when you’re also planning for retirement. The good news is, if you’re in the market for a new or new-to-you vehicle, a few smart moves can save you headaches, anxiety, and money. That’s extra cash you can put aside for healthcare costs, your emergency fund, or put back into your retirement investment plan

Whether you’re buying a new or used car, and whether you’re looking for sporty, outdoorsy, or just all-around practical, use these tips to help you pay less and avoid stress. 

Begin With a Budget 

Creating a budget isn’t just for first-time car buyers. You should always have a spending limit in mind and you can use this rule of thumb: the car’s sticker price should be no more than 20% of your annual pre-tax income. 

Protip: Be sure to factor in everything when creating your budget. Besides the price you pay on the lot, a car comes with other costs: licensing & registration fees, insurance, taxes, fuel, financing, depreciation, maintenance & repairs, and more. Multiply a car’s sticker price by approximately 120% to get an idea of its overall cost to you. That means if a car costs $30,000, you can expect about $6,000 extra in incremental costs. 

Do Your Research 

When you search by features and not by brand, you have the potential to spend less while still getting what you want. Think of your car search in terms of things like “four-wheel-drive”, “SUV”, and “no more than X years old” rather than “2019 Land Rover”. 

It also pays to know the market when it comes to prices and financing. This could mean knowing the Kelley Blue Book price for the make and model you’re interested in. Or learning what interest rates and incentives people are offering around town (so you’ll know if someone’s trying to price gouge). 

Finally, you’ll want to check out cars’ rankings for reliability, know which have the highest maintenance costs, and which get the best gas mileage. 

Shop Around for Deals

Again, this is where taking your time and doing a bit of research may pay off. October and November are generally good months to buy a new car, since dealerships offer great financing packages to make room for incoming new models. This year may be a bit different given the pandemic, but there are still deals to be found if you shop around. 

Try searching for “car deals Denver” or check out some of these recent promotions. And remember, sometimes you’ll pay a lower price if you’re willing to drive to a smaller or more distant city. 

Lease with Caution

Given the speed at which cars depreciate, buying a used car outright is often the best option. However, some retirees like the idea of leasing (whether new or pre-owned) for its convenience. Most maintenance and repairs are taken care of at no cost, and you can trade-in for a newer model every few years.

If you are considering a lease, scrutinize the terms for things like allotted mileage, covered repairs, and warranty. Is there a cost to get out of the agreement or other fine print? Did they try to sneak in an unnecessary upsell? Also know that you can negotiate for a higher mileage packagewhich could come in quite handy if you’re planning any upcoming road trips

Consider Paying Cash

Paying in cash isn’t an option for everyone, but you’ll almost always save money when you do. First, you’re less likely to overspend when you’re laying cold, hard cash on the table. Second, negotiate the final price before telling them that you are paying cash. And third, you’ll avoid paying loan interest that brings up the overall price of the car.  PS, If you do decide to get a loan, you’re usually better off going to your bank or credit union than the dealership.

Always Get a Pre-Purchase Inspection

Just as you would consult your financial advisor before making important investing decisions, you should check with an independent mechanic before buying a used car. Most auto shops offer a pre-purchase inspection which thoroughly tests the vehicle thoroughly from end-to-end. This health check-up will likely cost a few hundred dollars, but it could save you a bundle on expensive repairs later. Not to mention endless hours of frustration saved in dealing with a clunker. 

Don’t Negotiate in Person

New or used, it never hurts to negotiate the price of a car. And some car buying experts say you’ll fare better if you don’t negotiate in person. You can still take a test drive, and then grab the sales person’s card so you can follow up by email or telephone. Doing negotiations this way gives you more time to comparison shop, plan your strategy, and write out a detailed list of questions. Just knowing what to ask goes a long way, which many of us forget to do when we’re in the moment. 

What’s more, waiting gives you bargaining power. You can usually save several hundred dollars just by taking your time and not buying during the first interaction. 

Hopefully, with a well-thought-out plan in place, you’ll find it easier to buy your next carnot to mention save some money. While saving on a car can help you prepare for retirement, there’s more you can do. Take this quiz to check your retirement readiness.

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