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Turn Your Car Payment Into a Savings Strategy

cars1 jeff yeager blog

I noticed an interesting article from the Detroit Free Press about a trend that doesn't bode well for the auto industry, but speaks to America's new frugality.

It also reminded me of an old cheapskate tip for building your savings or retirement accounts in relatively painless fashion.

The article discussed new research by the Michigan-based firm R.L. Polk that shows that Americans who buy new cars are now keeping those cars for almost six years. Having never bought a new car in my life (for me, the "new car smell" has always been whatever the guy who owned the car before me happened to smell like), I was surprised that that time frame wasn't longer.

According to the research, that's the longest period of time new car buyers have been keeping their cars since R.L. Polk started conducting the annual study eight years ago. In fact, back in the heyday of 2003, new car buyers were only hanging on to their wheels for about four years.

The same study also showed that the average age of cars on the road in the U.S. is also at a record high -- almost 11years. I was glad to hear that. The next time my wife starts complaining about the age of our car, I can reassure her that it's only a couple years older than the national average.

Americans are hanging onto their wheels longer, either out of economic necessity or a new-found appreciation for frugality. Regardless of their motivation, I hope they'll do the smart cheapskate thing and continue to make monthly car payments even after their car (new or used) is paid off.

No, I haven't lost my miserly mind. The idea is simple: Once you've made your final car payment - or final payment on any type of personal loan - continue to make those same monthly payments directly into your savings account. You've already factored those payments into your household budget, so now you can pay them to yourself rather than to a finance company. It's an easy, painless way build your savings for your next big purchase, retirement, or an unforeseen emergency.

One of my cheapskate friends at AARP has been doing just that since she paid off her car six years ago. Now the $300 monthly "car payments" she's been making to herself are sitting pretty in her savings account and total more than $21,000. That's the kind of money that really gets my motor running.

Photo by csuspect via Flickr Creative Commons

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