Money Management

The average monthly car payment has hit a new high. Keep reading to learn where it currently stands. 

On average, 9.2% of household budgets go toward making car payments, and according to the Federal Reserve Bank of New York, Americans owe $1.56 trillion on their vehicles. That’s almost double the amount it was 10 years ago. We appear to have a love affair with shiny new cars and have the debt to show for it.

Here, we’re going to look at the average car payment, how the loan term impacts how much we pay to finance a vehicle, and ways to keep auto loan payments low.

Average payment

According to the car shopping experts at Edmunds, by the second quarter of this year, the average monthly car payment reached a record high of $733. What’s more, 17.1% of us were financing a vehicle with a monthly payment of $1,000 or more. That’s also a new high.

While auto prices have increased dramatically since the early days of the pandemic, interest rates have also risen dramatically. In an effort to fight growing inflation, the Federal Reserve has ratcheted up the federal funds rate. And while inflation is slowly coming down, the interest rate does not seem to be in a hurry to follow.

Whether a person gets their loan from their local bank or a bank suggested by the car dealership, the combination of high interest rates and higher-than-usual car prices has resulted in stiff monthly payments.

Average loan size

Experian reports that the average loan amount for new vehicles is $40,851. For used vehicles, it’s $26,420. Let’s say that someone takes out a 48-month loan for $40,851. If their loan’s APR is 8.5%, their monthly payment will be $1,007, and they’ll pay a total of $7,481 in interest.

The interest rate lenders charge tends to be higher on used vehicles, so if a car buyer takes out a 48-month loan for $26,420 to purchase a used car at 9% APR, they’ll pay $657 a month and a total of $5,138 in interest.

Stretching it out

To keep payments down, many buyers opt for a longer loan term. Edmunds’ research showed that 64.5% of buyers signed up for a loan term ranging from 67 to 84 months and an average interest rate between 8.5% and 9.6%.

A longer-term loan does have lower monthly payments. For example, if someone takes out a $40,851 loan for 72 months with an 8.5% APR, their monthly payment is $726. That’s $281 less per month than they would pay if the loan term was 48 months.

However, by stretching out payments to 72 months, they end up paying a total of $11,440 in interest, $3,959 more than if the loan term was 48 months. That’s nearly $4,000 they could use to build an emergency savings account, make repairs around the house, or invest for retirement.

Tips for minimizing the size of your monthly payment

With higher interest rates and new car prices, it takes a savvy shopper to keep their payments as low as possible. But remember, keeping payments low by stretching out the loan term means paying more in interest. Here are a few ideas that do not involve extending your loan term.

Improve your credit score

In September, Experian released the following table, showing how much a credit score impacts the cost of borrowing money.

If your credit score is lower than you would like, take time to improve it before applying for a car loan. While it may feel daunting, millions of people have improved their credit situation, and you can, too.

Make a larger down payment

It may seem obvious, but making a larger down payment means you won’t have to borrow as much, and the less you borrow, the less you’ll pay in interest. If possible, postpone applying for a new auto loan until you’ve had time to build up a good down payment. And don’t forget: If you have another vehicle to trade in, it can form part of your down payment.

Go for a less expensive vehicle

One of the least fun things about adulthood is having to make responsible decisions and not getting what we want. Revisit the type of vehicle you want and decide if there’s another — less expensive — car that could also make you happy.

Buy a low-mileage used vehicle

There are folks who trade in their cars every year or two. Keep your eyes open for a used vehicle with low mileage. Many cars lose 20% of their value within the first year. You can capture that savings by purchasing a newer used car. Its original warranty may still be in effect, or you can look into purchasing an extended warranty.

Most people enjoy the feeling of driving a new car, but no one wants to toss and turn in bed at night, worried about high payments. If you’re going to be in the market soon for a vehicle, make it easier on yourself by minimizing the amount you pay.

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Serious about retaining talent? Read on to see what benefits you should aim to offer in the new year. 

As a small business owner, you’re no doubt aware of how important it is to retain talent. Every time you need to hire someone new, it takes time, effort, and money to make that happen. If you can hang onto your current staff, you stand to save in all of those areas.

Raising wages is a good way to entice employees to stick with you. But it’s just as important to offer up the right benefits. Here are some perks you may want to consider offering in 2024 if you don’t offer them already.

1. A retirement plan

A recent CNBC survey found that only 60% of Americans have access to a 401(k) or similar employer-sponsored retirement plan. It’s not always so easy to offer a retirement plan because the costs can be high. But you should know that a 401(k) may not be your only option. If you own a small business, you can look into alternative plans like a SEP or SIMPLE IRA.

Either way, if you can offer up some type of match in addition to simply providing access to a workplace plan, you’ll be doing your employees an even greater service. And you should know that if you go the SEP or SIMPLE IRA route, there are matching requirements for employers you’ll need to adhere to anyway.

2. Heavily subsidized health insurance

Offering health insurance is essential, and that’s something you probably know. But simply offering health coverage may not be enough.

This year, workers with subsidized employer health plans are paying an average of $6,575 for family coverage and $1,400 for individual coverage, according to the Kaiser Family Foundation. If you want to really help your employees, subsidize a large portion of their healthcare premiums so their out-of-pocket burden shrinks.

3. An emergency savings account

A whopping 63% of Americans don’t have enough cash reserves to cover an unplanned expense costing $500, says SecureSave. Just as it’s important to offer your workers access to a retirement plan, so too does it pay to offer them an emergency savings account that’s funded directly from payroll. If you’re willing to kick in some funds, even better.

Now, you might assume that if you’re offering your employees retirement plan access, you don’t need to offer a separate emergency savings account. But remember, 401(k)s and IRAs impose penalties for early withdrawals — those taken before age 59 1/2. A retirement plan like that isn’t meant to serve as an emergency fund.

PeopleKeep reports that the cost of losing an employee can equate to six to nine months of their salary. In other words, losing an employee who makes $90,000 a year could mean spending $45,000 to $67,500 on a replacement worker when you account for human resources costs, recruiting, and training. Ouch. If you’d rather save your business money, do what you can to retain the talent you already have by beefing up your benefits package to the best of your ability.

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No one can know how their retirement will look, but $2 million will go a long way. Read on to see how this amount stacks up to the average retirement savings. 

No two retirements are the same. If two people have the same amount of money saved in similar accounts, retire at the same age, and their retirement lasts the same number of years, there could still be huge differences in what each retirement looks like.

Two reasons for this are that everyone spends money differently, and one person may have more health-related expenses in retirement than another.

So even with $2 million in the bank, it’s nearly impossible to predict what your retirement will look like. But if you’re on track to have $2 million saved before you stop working, you’ll be much further along than most retirees.

How $2 million compares to other retirees

With $2 million in the bank, you probably won’t be jet-setting in your private plane, but you will have a lot more money to spend than the average retiree does.

Recent data from Vanguard shows that the average retirement account balance — including in a brokerage account — for people aged 65 or older was $232,710 in 2022. Based on this average, someone with $2 million in the bank would have more than eight times the amount saved than the average retiree.

That amount of money is also far more than the average person thinks they need to comfortably retire. A recent Northwestern Mutual study found that Americans believe they need $1.27 million in savings to retire well.

So if you’re wondering what your retirement life would be like with $2 million compared to the average retiree — it’s looking pretty good.

Your retirement savings could last longer

As I mentioned earlier, there’s no hard-and-fast rule for your retirement because everyone spends their money differently. This also means there’s no guarantee for how long your savings will last, even if you have $2 million.

But, assuming you don’t buy a yacht or private island in retirement, we can apply some general rules to see how long the $2 million will last based on average annual spending.

For example, according to the Bureau of Labor Statistics, the average retiree spends about $52,141 annually. Meanwhile, a $2 million retirement account will provide you 25 years of $80,000 in annual income — based on the 4% retirement rule.

In general, the rule says that you should only withdraw up to 4% of your retirement savings each year, and adjust for inflation annually, to make your savings last for about 30 years. The rule has come under increased scrutiny lately because of rising inflation, but can still be used to estimate how long your funds may last.

So, you could either spend $80,000 per year to make your retirement savings last about 30 years, or you could spend an average of about $52,000 and have your money last even longer. Of course, these are just estimates, but for those with $2 million in the bank, you could potentially retire a little earlier than most people.

Consider what you want your retirement to look like

Whether you end up with $2 million in your retirement account or less, having a plan to save for retirement will help you stay on track. For example, Vanguard says that employees who are auto-enrolled in a retirement plan save up to 40% more than those who aren’t.

When deciding how much to put toward your monthly retirement contribution, consider how you plan to spend your retirement and where you may want to live, and factor in health-related expenses.

If you’re having difficulty coming up with your own estimates, consider hiring a financial advisor to help guide you through the process. Or, if you prefer to do things on your own, you can try using a robo-advisor.

And remember, every retirement looks different. It’s better to begin putting some money into a retirement account — no matter how small the amount — rather than giving up because you feel too far behind.

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Costco is offering low-cost medical visits, which is another major membership perk. Here’s what you need to know about the new feature. 

Costco membership gives you access to many great deals that can help you keep more money in your bank account. Beyond just buying bulk cereal or supersized bottles of ketchup, you can also break out your credit cards to purchase vacations, jewelry, and even cars at Costco.

Costco is offering another important benefit to members that could make joining the warehouse club even more worthwhile. Here’s what it is.

Costco to offer low-cost medical visits to members

Costco will soon be a destination for medical care, as well as for Kirkland Signature products and its famous $1.50 hot dog and soda combination.

The warehouse club has teamed up with Sesame, an online health marketplace that aims to offer affordable care to people with no insurance or with high insurance deductibles. Through this partnership, Costco members will be able to book in-person or virtual visits for medical care at a very low cost — as long as they are willing to pay cash for their services instead of using health insurance coverage.

Costco members will have access to “Sesame’s best pricing” in all 50 states across the United States. This entitles warehouse club users to:

A $29 virtual primary care visitA $72 health assessment, which includes running a standard lab panel and getting a follow-up with a provider via a virtual visitA $79 virtual mental health therapy visit10% off in-person appointments booked through Sesame (in-person visits are also affordable — for example, a doctor in Baltimore offers a visit for just $74 for Costco members) 10% off other Sesame services

Costco members who want to take advantage of this perk can go to the Costco website, enter their email address, and move forward with arranging a visit with a provider. In many cases, it’s possible to get a same-day visit, or even on weekends or otherwise outside of standard business hours.

Should you join Costco to take advantage of this new benefit?

Many people struggle with getting access to healthcare, especially if they don’t have good insurance. If you are not covered at all by a health insurance policy or if you have a very high deductible, you may be able to benefit from the Costco/Sesame partnership.

However, you take a huge risk if you don’t have insurance coverage. So the first step if you have no policy at all should be to visit HealthCare.gov and look into your options for getting insured. Not having coverage could lead to financial disaster if you get sick, and there are subsidies for those who struggle to afford insurance costs. Open enrollment for healthcare runs from Nov. 1, 2023 to Jan. 15, 2024, so now is a good time to start thinking about getting covered.

If you have insurance but a very high deductible, or if you can’t get coverage for some reason, then it’s worth using the Sesame benefits if you are already a Costco member.

If you aren’t, then there’s no reason to join the warehouse club just to gain access to these benefits since you could just book appointments directly through Sesame without paying the added costs of a Costco membership. You’d pay a little more without the Costco discounts (about $8 more for an in-person visit and around $9 or $10 more for telehealth). But unless you go to the doctor often, it’s not enough to justify Costco’s membership fees (which start at $60 annually).

If you were on the fence about whether Costco could provide you with enough value, though, and you may need to pay cash for some medical care, then this new partnership with Sesame definitely sweetens the deal.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Jan. 1 is a common date to start working on a New Year’s resolution. Learn why you shouldn’t wait to improve how you manage your credit cards. 

It’s very common for people to make New Year’s resolutions that aim to improve some aspects of their financial life. But while a new year is a good time to start working toward goals that will leave you with a bigger checking account balance, you don’t have to wait until January to start working on improving your situation with regards to your credit cards.

In fact, with the average credit card interest rate hitting 21.19% as of August 2023, you can’t afford to wait. You should make these three credit card resolutions right now and start working on them today.

1. Resolve to pay more than the minimum

Paying only the minimum on a credit card is not something you should ever do. The minimum payment is usually only around 1% to 2% of the balance due on the card. It will basically cover the interest and very little of the money will go toward reducing the principal balance. As a result, you’ll be in credit card debt for decades if you only pay the required amount.

Just how long would you be in debt if you only make a minimum payment? If you owe $1,000 on a card with a 21.19% interest rate, it would take you 245 months to repay your balance, and you’d pay a grand total of $3,973.76 — including $2,973.76 in interest.

Unless you want to triple the cost of everything you buy and be paying for it 20 years after you made the purchase, resolve to pay more than the minimum required. Ideally, you should resolve to pay your full balance before you owe any interest at all. If that can’t happen, then at least to commit to putting a little bit of extra in every payment. Even a small amount can make a big difference, because it goes directly to paying your principal balance.

2. Resolve to make all credit card payments on time

You’ll also want to make a resolution to pay your credit card bills on time every single month. This can help you avoid late fees as well as damage to your credit score. People who make a single late payment by 30 days or more could see their credit score fall around 60 to 110 points, with those who previously had great credit seeing the biggest decline.

Keeping this resolution is easy. You can just set up automatic payments from your bank account before your bill is due. Try to make these for as much money as possible — ideally for the entire balance due on the card — but aim to at least pay a little more than the minimum no matter what.

3. Resolve to use the right credit card for your situation

Finally, you should resolve to use a credit card that makes sense for you. Specifically:

If you plan to carry a balance, look for a card offering a 0% promotional APR on purchases or one that charges the lowest rate possible.If you won’t carry a balance, look for a card offering bonus rewards that are matched to your spending. So, for example, if you spend a lot on gas and groceries, you’d look for a card offering extra cash back for gas and grocery purchases.

You shouldn’t go another day using the wrong card, as you could be paying extra interest unnecessarily or missing out on valuable rewards. Research some of the best credit cards to find one that’s right for you.

By starting to work on these resolutions today, you can put yourself in a position where you’re paying down your debt, improving your credit, and maximizing the value that credit cards can provide you. Why wait until January to do that?

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A $50,000 income might make it tough to fund your IRA generously. Read on to see what might happen if you do your best. 

You’ll need personal savings to help live comfortably in retirement. And that’s where your IRA comes in. Once you have a fully loaded emergency fund, it’s a good idea to focus on contributing to your IRA.

But what if you only have a $50,000 income to work with? IRAs max out this year at $6,500 for savers under age 50. Hitting that limit means parting with 13% of your earnings. That may not be doable. You can, however, build up quite a nice IRA balance even if you contribute less.

You might end up with $1 million or more

If you spend your $50,000 salary carefully, you might manage to save 10% of it per year, or $5,000. Meanwhile, the stock market has delivered an average annual 10% return over the past 50 years, as measured by the S&P 500 index. So if you save $5,000 a year over 40 years, you’ll end up with roughly $2.2 million in your IRA if you manage that same 10% average yearly return.

Clearly, that would be awesome. But it also may not be doable. Parting with $5,000 a year on a $50,000 salary isn’t easy.

Granted, just because you’re earning $50,000 a year right now doesn’t mean your income won’t rise over time. As you continue to work, it’s conceivable that you might build skills that increase your earnings. But for the sake of this part of the discussion, we’ll assume you’ll always be working with a $50,000 annual salary.

If you can’t part with $5,000 a year, or 10% of your wages, that’s understandable. And it’s important to strike a good balance between saving for retirement and living your life.

You might be able to save $5,000 of your $50,000 salary by renting a cramped studio apartment and getting a roommate. But that sounds pretty miserable.

So let’s say you’re only able to save $200 a month for retirement, or $2,400 a year. In that case, assuming that same 40-year window and 10% average annual investment return, you’re looking at an IRA balance of a little more than $1 million. That’s not too shabby at all. And it may be a more realistic goal to aim for, since it allows you to spend more of your income while also amassing a really nice nest egg.

Aim to ramp up contributions as your salary increases

We specifically ran some numbers to show what a reasonable IRA balance might look like on a $50,000 salary. But we also assumed that $50,000 would be your salary indefinitely. That’s unlikely. So if you like the idea of retiring with $2.2 million more so than a little over $1 million, aim to save your raises throughout your career.

Perhaps you can only save $2,400 a year while you’re earning $50,000. But if your salary rises to $51,500, you might be able to ramp up your IRA contribution to $3,900 that year. Keep boosting your contributions as your income rises, and you could end up with a lot of money by the time retirement rolls around.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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