How Smart Car Shoppers Can Save Over $500,000You may be thinking there's a typo in the headline, perhaps I accidentally added an extra zero or two.
As unbelievable as it sounds, I'm going to show you exactly how you can save over $500,000, simply by buying a car the smart way.
When shopping for a car, most people focus too heavily on price negotiation and fail to take into account all the other aspects that go along with the transaction. These include financing, trade-in, car insurance, and add-ons such as extended warranties. On top of this, there are also variable ownership costs such as depreciation, fuel cost, repair and maintenance.
For my example, I'm only going to focus on the money-saving aspects of actually buying the car and the costs that go along with the transaction. I'll leave ownership costs out of the equation, which means you can save even more money if you choose reliable, fuel-efficient vehicles that hold their value well.
Buying a car is unlike most other shopping experiences in America. Haggling over price is not something we're accustomed to and most of us are uncomfortable with the process. In situations where consumers get vastly different prices for the same products, we tend to see a pattern in the results:
- 5% negotiate incredible deals
- 15% end up doing pretty well
- 60% struggle to get a deal
- 20% get absolutely ripped off
The top 20% end up saving as much as the bottom 80% combined. This pattern shows up in many different areas, including wealth distribution in America.
The goal of RealCarTips is to show readers how to end up in that top 5% of all negotiators. It's not difficult if you're willing to take the time to learn, and as I'm going to show you, it's well worth your time.
I assume that the average RealCarTips reader can save $5,000 each time they buy a new car. By following my step-by-step car negotiation guide, you can save $2,500 more than your typical car buyer just on the price of the new car, and I haven't even gotten to financing or trade-in yet.
Most car buyers finance their purchase, and up to 80% of them do so through a dealership - one of the costliest mistakes you can make (see: How Much Dealers Make on Car Financing). By following my car financing guide, you can easily save $1,000 in interest payments.
Finally, if you have a trade-in, you can follow my Trade-in Guide to save another $1,500 over the typical car shopper. If you sell the car privately, you stand to save even more money.
When it's all said and done, you should be able to save at least $5,000 more than someone who didn't do any car buying research. Some car shoppers can save upwards of $10,000!
Assuming you buy a new car every 5 years starting at age 25, and you save and invest that $5,000 after each purchase, by the time you retire at 65, you will have saved over $500,000!
This assumes you invest that $5,000 in an index fund that tracks the S&P 500. In the period between 1910 and 2010, the S&P 500 has returned an annualized average rate of 9.53%, so it's assumed you will get that rate of return over the next 40 years.
Here is what your savings would look like:
|Age||Savings||Compounded Savings by age 65|
Your results, of course, may be different - especially if you don't buy a new car every 5 years, but this example shows how important it is to research before buying a car.
When you factor in all the costs involved with purchasing and owning a car, it turns out to be the most expensive purchase most people ever make. You oftentimes hear that a house is the most expensive purchase - but that's not necessarily true. Houses tend to appreciate in value, while vehicles always depreciate.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid