To retire sooner, is it better to make more or spend less?

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Source: John Althouse Cohen via Flickr under a Creative Commons license

Oh hi!

This question comes up more often than it should despite it being pretty simple math, so I figured I might as well do a quick post on it.

When it comes to out-of-whack budgets, there are always two ways to get them solvent: the subject can either cut their spending or they can make more money.

And yes, that is an inclusive or because you can and should try to do both.

BUT! Suppose for a second that you were forced to pick just one of the two with the explicit intent of retiring sooner. Which should you go with?

An example

Setup

Suppose you’re 25 years old and will live through the age of 80, at the end of which you will promptly die (so it goes).

In regard to income and expenses, you currently make $40,000 per year and spend $35,000 per year. This means you’re putting away $5,000 or 12.5% of your income, for retirement. Not bad!

Suppose you have two options to increase your savings by $5,000 per year, that first year:

  1. Make $5,000 more, for an income of $45,000 per year (with the $35,000 in spending held constant)
  2. Spend $5,000 less, for spending of $30,000 per year (with the $40,000 in income held constant)

And just to finish setting this up, let’s suppose macroeconomic conditions are such that inflation, affecting both your spending and income, is constant at 2% and your retirement savings grow at a constant nominal rate of 6% (net of all taxes).

A little math

In order to figure this out, I put the above numbers into a spreadsheet, and calculated how long you’d have to work so as to not outlive your money.

Click to enlarge

Click to enlarge

In the baseline scenario, you have to work until age 64 (To be more precise, you have to work 7% of the year after you turn 64).

Then, switching up the numbers, in the Make More scenario, you have to work nine years less, until age 55. That’s quite a drop!

But! If you instead spent $5,000 less per year in the Spend Less scenario, you can work 11 years less, until age 53 — an even bigger drop!

(For those curious, if you did this by ratio — e.g. a 10% pay increase vs. a 10% spending cut — spending less still wins, but by a smaller margin)

Intuition

Wait, so why is this even happening?

Think about it this way: Sure making more money is great (it really is!), but it only helps you during the working part of your life, and presumably, you don’t want to work until you’re dead. On the other hand, spending less helps you save more of your paycheck while you’re working AND helps your money last longer once you’ve retired; it’s basically the double rainbow of budget tips!

Now, of course, there are a ton of other factors at play, but it looks like this “quick post” ended up pretty normal-sized so I won’t go into those.

Who else has interesting math stories to share?

Does gold make sense as part of an emergency fund?

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Source: Alexander Boden via Flickr under a Creative Commons license

Welcome to Wednesday everyone!

I’ve posted my thoughts previously about what an emergency fund should like, specifically saying that having a plan about what you would do during an actual emergency is just as important as how much money you have.

More to the point, thorough planning is the only thing that applies to everyone; beyond that, the specifics of how much and what should or should not go into an emergency fund are simply too dependent on individual circumstances. Personal finances are personal!

Anyhow, that certainly doesn’t mean that you shouldn’t have as much knowledge as possible. So, for the sake of knowing and understanding as many of your options as possible, let’s look at precious metals, and gold bullion specifically, as possible components of an emergency fund.

Oh yes, let’s talk gold

On Twitter, I asked generally about thoughts on gold and was surprised to be met with an earful.

Generally speaking, one of the most universal aspects of any component of an emergency fund is that it should be liquid — that is, that they can be “converted into cash quickly” — so that they can be used to pay bills in the event of a job loss or some other unforeseen personal finance event. Gold, then would seem to be directly at odds with this aspect of emergency funds

For those interested in the topic, investment site BullionVault has plenty of information on buying gold, such as making the attached finances more accessible.

Liquidity concerns and some final thoughts

Even though its literal liquidity — that is, its low melting point of 1948 degrees Fahrenheit — is seen as one reason why gold has long been the metal of choice for currency, it’s figurative liquidity should still be a cause for concern.

The site’s guides for buying and selling acknowledge that physically keeping the gold makes converting into cash very inefficient. However, one alternative they suggest of storing your gold in a provided, secure vault makes the re-selling process far more efficient and thus more liquid, making it potentially more compatible with an emergency fund.

Whether or not having gold makes sense from a strictly financial standpoint depends on your personal situation and is something you should definitely discuss with your financial planner before proceeding. Some of the pros and cons are outlined clearly and concisely at Mass Resources. One pro that this guide suggests is that gold can help to protect you from issues like currency devaluation or even bank crises, which can negatively impact cash holdings or other forms of investment.

At the end of the day, even if you do go this route the most prudent strategy may be to include gold as just one part of an emergency fund plan, rather than the main focus. This, too, is very general advice that is certainly not to be taken as gospel. Any investment depends on your tolerance for risk, your other holdings, and so forth. Still, gold and other precious metals are at least worth considering as components to include in a thorough emergency plan.

“I’m not sure if I have retirement savings; doesn’t work do that?” -Tara, a reader case study

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Source: Kevin Dooley via Flickr under a Creative Commons license

Good morning! I hope that everyone had an invigorating weekend.

Today’s post comes in response to an ongoing conversation I’ve been having with a reader named Tara [She is not named Tara] who agreed to be part of a case study in a post — provided that I anonymized her information — wherein I offer my advice. You all can see if you agree with my advice and offer any other ideas you might think I missed.

Background

Tara is a working professional living and working in New York City. She’s single, a couple years out of grad school, and in her late 20s.

Long-term goals

Long-term goals are important. Tara wants to own a house someday, help her parents out with a little cash every month in 15 to 20 years. She’d also like to be in a comfortable spot financially to react as life throws its curve balls at her.

Tara’s finance problem (according to Tara)

I’ll get to what I think her problems are in a little bit. For now, here’s what she said needs a lot of work. Tara has debt — a lot of debt. Upon meeting her, she told me that she desperately wants to pay off her $120,000 in student loans in five years because she plain doesn’t like debt. Some mornings, she wakes up hyperventilating when she thinks of how much debt she has. She’s even considered moving to Dubai solely due to higher-paying jobs and the absence of an income tax, but in the same breath mentions that she doesn’t really like Dubai.

Tara’s net worth statement

Savings and investments

Other than a $10,000 emergency fund in a depositary bank account, Tara doesn’t have any other savings or investments — retirement or otherwise. Rather, I should say that she probably doesn’t have any retirement savings because she isn’t sure whether or not her company contributes to a retirement account on her behalf or if it auto-deducts a portion of her paycheck.

Debt

When I asked her to look up her account balances, it turned out that Tara actually has $100,000 in student loan debt. $50,000 of that is at 7% and $50,000 of it is at 2%.

Net worth

This math is easy enough: $10,000 – $100,000 = -$90,000

Tara’s income and expenses statement

Income

Luckily, Tara holds a pretty stable job and is paid well for it, netting $4,800 in take-home pay every month. Back-tracking the taxes out, that would make her annual gross pay in the high $80s.  Other than this job, she has no other sources of income.

Expenses

Here’s where things get a little dicey. Tara didn’t know most of these answers:

  • $1,400 Rent
  • $800-$1,000 Food [People always underestimate food, so that she would guess this high is a bit scary]
  • $300 Taxis and transit
  • ??? Health insurance
  • ??? Utilities
  • ??? Cell phone [OK, you get the point]
  • $1,500 Student loans [Importantly, none of her loans are federal so in lean times, she has no explicit option for reducing her payments

There's $600 that are unaccounted for in there, and I'd guess that some of the numbers she did have are very squishy.

Tara's problem (my take)

Her student loan debt of $100,000 is definitely a very big deal; the name of this blog wouldn't even make sense if I didn't think so. However, it's a very manageable one given her income.

Her outlook is actually more concerning to me. She's in a good  position financially but is making herself miserable thinking about how daunting it is to get rid of six figures of debt.

Not knowing whether she is contributing to a retirement fund is pretty disconcerting. Even scarier is not knowing whether or not her employer offers a company match for contributions.

Also, she doesn't track her monthly spending in a budget. This might not be important for everybody, but given how extreme some of her line items could be, there might be a very big difference between her perception and reality.

She spends a lot on food.

My advice

Hi Tara!

For the student loan debt, I would suggest that she pay the loans in order of highest interest rate first, to the extent that's possible. This post helps explains why:

Why I won’t consolidate my student loans (in under 100 words)

For the outlook, there are two things I would do. First, I would put together an amortization table of how long it would take to knock out your loans given your current payment schedule. Not only would this let you know how much you have to pick up the pace to get to zero in five years, but it would also make you feel more in control -- and control is so important to not burning out. Let me know if you need help with the Excel. This post helps with the philosophy:

The importance of goals, and intermediate goals in particular; and examples of my own intermediate goals

Second, I'd take a deep breath and realize that things are going to be OK and that being miserable doesn't help anyone. One of the things that I like to do is chart my progress rather than charting my balances. Maybe read this:

Millennials: YOU decide whether or not you’re miserable about student loans

For the retirement fund, at a minimum, find out if your work offers an employer match. Not taking advantage of that is basically throwing away free money.

In order to get to a place where you can work on a monthly budget, spend the month of May tracking all of your expenses. It's good to want to spend less, but that's tough to do when you don't know where your starting point is.

For your food spending, I recommend some introspection to see if this is something that's as important to you as the $1,000 in spending would make it seem. Maybe try limiting eating out to just a few times a week for starters and get some high quality groceries and some nice recipes in order to make eating in feel more appealing.

And that's my advice!

Anyone else have thoughts for helping out Tara?

Financial literacy gave me hope!

Oh hi, and welcome to my post in the Financial Literacy Awareness Carnival, being hosted by Shannon at The Heavy Purse.

Financial literacy is personally important to me because it gave me the hope I needed to really get my own debt paydown moving.

A slow start

fin_lit_carnival_2014

Debt never just happens. It eases its way in, grows, and festers. Then it takes over, breaking even your will to get rid of it.

I had over $160,000 in credit card debt and student loans by the time I finally convinced myself to get started paying it off.

And when I did start, I came at it with the mentality that the best I might hope for would be to not fall into the abyss.

The issue with starting so close to the edge was that mentally, I was still broken; making a meaningful dent in my debt — let alone paying it off! — looked so far outside my capabilities that I barely wanted to try.

Of course, when I first started sending money toward my debt at the beginning of 2013, the numbers went down, but slowly.

But I made a lucky decision back then when I resolved to start blogging alongside my small payments.

Blogging about paying off my debt not only held me accountable to making those payments, but it also helped me to get smarter about personal finance.

No, getting more knowledgeable didn’t directly make my loan payments smaller.

My aha moment

But financial literacy did help in many other ways.

It taught me how to deal with credit card issuers to ask for lower rates and balance transfers, and how to work with student loan issuers to make my payments more manageable.

It taught me how to budget and live more frugally so that I might have even more to send toward my debt.

And it taught me the power of compound interest and how small changes can add up to a very big impact over time — even big compared to the size of my debt!

My aha moment was when I found out that I wasn’t facing an impossible task — that I did have a chance to beat my debt and that I had the tools at my disposal to do so.

Today, my debt is over $40,000 less than where it was when I started. I still have a long ways to go, but thanks to financial literacy, I have the tools — and more importantly, the hope — to get there.

Why I’m still happy to be getting a tax refund

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I’m happy like this bear. Source: Valerie via Flickr under a Creative Commons license

Ah, the tax refund. There are few times of year when personal finance enthusiasts and other Very Serious People feel as much smug satisfaction as they do in seeing the (unwarranted?) glee in their friends’ and neighbors’ faces upon receiving a big tax refund.

This smugness comes because receiving a refund after filing a tax return implies that you overpaid during the year, and if you had instead put that over-payment into a savings account, you could have made a little bit of interest income instead of letting the government hold onto that money for you for free. THIS IS A BIG DEAL!

As I put the finishing touches on my own taxes for 2013, it looks like I’ll be getting a little bit of a refund too — not the biggest one out there and certainly not as big as the refund I got last year for the 2012 tax year, but it’s there nonetheless.

Here’s why I’m still pretty happy about it.

Taxes are hard

My taxes are a little more complex than the average person, but I think everyone out there can agree that taxes aren’t the easiest thing in the world to figure out.

Even when professionals are tracking your taxes year-round, they can still make mistakes that they don’t find until the last minute. And even if they don’t make mistakes, estimating everything so that you owe exactly nothing at the end of the year is still pretty tough.

Either an exemption that you’re not entitled to or a deduction that you thought you were getting but aren’t, can mean the difference between getting a small refund and owing a pretty sizable amount.

Yes, if things do go your way and you end up with a $500 refund, you’ll feel a little silly about not earning any interest on that money during the year. But if things don’t go your way and you end up owing $500, that can make for a very bad month or two. And if your finances are already out of order, having to come up with $500 quickly can be pretty catastrophic.

Interest rates aren’t that great

So that $500 refund; even in the best-case scenario, I could have only made about $5 in interest throughout the year.

Are you really gonna spend all week acting self-righteous because I missed out on $5 worth of interest?

Get a hobby — some hobby that doesn’t involve acting like a clown.

It shows that I’m a human being

A refund of $500 at the end of the year breaks down to about $20 per paycheck. Yes, I’m definitely not the sort of person who would turn down $20 every couple weeks, but it’s easy to ignore those little losses.

Meanwhile, you know who feels pretty great about getting $500 all at once?

Every human ever.

Someone tell me I’m wrong.

Oh, and everyone: Have a nice week :)



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Send your taste buds on a trip around the world with Try The World

Hey guys.

I entered an exciting new stage of blogging today by conducting my very first interview ever.

Read all about a neat new company in my newest post, “Try The World sends your taste buds on a trip around the world at a fraction of the cost” on my companion site Adventures in Frugal, in which I spoke with co-founder David Foult!

Try the World sends subscribers a box filled with hand-picked gourmet foods from a different city around the world every other month, along with tips on things to do in the city as well as movie and music recommendations to put on while you’re enjoying the snacks.

And have a wonderful weekend :)

Source: David Foult

Source: David Foult

How an IRS audit can make you sick

[Hey, I'm doing another post exchange with another blogger. Today, that blogger is Jordan from Beer, Bacon, and Business; see his bio for more information about him. Look for my companion post on his site soon. Interested in doing a post exchange? Make sure you have your own active, personal blog and that you're cool with me editing your writing, then contact me -Ed.]

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Source: Ryan Hyde via Flickr under a Creative Commons license

Let’s face the facts here; taxes are scary!

Oh, you think you’re all tough and muscular? Do you even lift? I bet if I said the words, “tax returns,” you would whimper like a little baby in need of a diaper change. Say the words, “tax audit,” and that whimpering turns into full-on bawling.

No one wants the IRS snooping around, even if they have nothing to hide. IRS audits can be terrifying and statistically speaking, they’re pretty rare; only one percent of Americans go through that ordeal. Now that‘s a one percent you don’t want to belong to.

Wondering what makes you more susceptible to an audit?

Make one mistake in filing your returns, and you could have the IRS at your door.

Are you a big earner or have assets running into the millions? The IRS has got an eye on you.

Fudging your taxes? You should be especially worried.

Here are some things you can do to avoid tax audits by the IRS:

Report all your income

This one’s a must! Don’t think for a second that the IRS doesn’t know that you work two jobs.

Using either the W-2 and the 1099 form, account for everything that you earned, even if it’s gambling winnings (No, seriously; casinos have to report winnings to the IRS, so someone out there knows how you’ve been spending your time).

It’s especially true if you’re self-employed. Don’t cheat when it comes to your income, because you’ll have to pay a big price for it.

Have all your supporting documents in place

I cannot stress this enough. If you think that you qualify for a deduction, add the appropriate amount of paper work to justify it. Don’t just assume you’ll get one. Whatever your expenses have been, make sure that you have evidence to qualify it, be it spread sheets or your bank balance. Everything should be crystal clear and make sure that the IRS knows you have nothing to hide. If you have lost any important documents, you can use the 4506-T form to get a copy from the IRS.

Check and re-check your math

I understand that math is not everyone’s cup of tea. But it’s important that you have the right numbers, otherwise the IRS will come to you. If you think round numbers are easier to work with, then too the IRS might ask you for more specific numbers and supporting documents. If math isn’t a strong point with you and the likelihood of you making a silly calculation error is high, I suggest you go to a professional like Pershing Yoakley & Associates or 1800accountant.com. It will just make things easier for you and the IRS both!

It’s all about neat and clean returns

The numbers are illegible? Well then, isn’t it obvious that the IRS wants an explanation? File a decipherable return and you won’t have that problem.

Being too charitable might get you in trouble

Charity is great. A too large amount of charity which seems a little odd compared to your income bracket? Yep, the IRS will come after you because they know what average charitable amount is for people in your tax bracket. Proper paper work is everything. So, if you can prove that you are more charitable than the rest of us, then you’ve got no problem.

Business meals, travel and entertainment

Schedule C will help you get a good amount of deduction because it’s all just business after all. Ask for too much, and the IRS would definitely want an explanation. Be careful, especially if you’re self-employed. And again, details are all important!

So you have a hobby (And you make a profit)

If you bake cookies, your neighbors love to gorge on them and pay a good price for them too, and this has happened for three out of five years that you’ve been at it, it’s no longer a hobby my friend; this qualifies as a business and you have to pay the appropriate amount of taxes for it.

These are just some of the steps you could take to avoid an IRS audit. But don’t be too worried. Sometimes, all the IRS needs is a proper explanation. If you give them that, there won’t be a problem. Remember that proper documentation and timely filing of taxes will take you a long way.

All Rights Reserved. Jordan is the original Author and DebtBLAG.com is the authorized Publisher of this content. Unauthorized republishing of this content will result in violation of Copyright laws. Doing the same may lead to initiation of legal proceedings by the Author and/or Publisher. However, you are allowed to like, tweet, share or promote the article link in your network without prior permission.

Author Bio: Jordan Greer is a 28 year old entrepreneur and a former Business Developer. With an insatiable appetite for the good life, keeps himself current on topics related to technology, gaming and his first love, food. He shares his views on his blog posts hoping to provide valuable information to entrepreneurs like himself who wish to establish a successful business.

Here are my personal finance goals for April 2014; finally bouncing into spring

Good morning! As we continue into April, I’d like to do a quick post to lay down a few personal finance goals for me to strive toward this month.

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Source: Tambako the Jaguar via Flickr under a Creative Commons license

April Goal #1: Pay down some freaking debt. That’s what this blog is about; isn’t it? And yet I’ve managed to find plenty of excuses during the first few months of the year to move slowly on debt repayment. That needs to end now. I am anxious to get going as I enter the post-tax return part of 2014. Let’s start with baby steps then — my goal for April is to send $500 toward my student loan debt.

April Goal #2: Add to my retirement accounts. I have been amazing at this in 2014. So as to not stumble, I’d like to set an aggressive goal of adding $2,200 to my retirement accounts in April.

April Goal #3: Finish my tax returns. Don’t even ask. This monster that keeps coming back from the dead….

April Goal #4: Keep adding to my emergency fund. I’m doing the 52-week savings challenge to plump up my emergency fund and it is going very well so far. For those out of the know, the 52-week savings challenge is one way to progressively add to an emergency fund over the course of the year, starting slowly, with just $1 the first week and $2 the second week.

I’d like to stay on pace to finish this. I think I’ll also do a blog post about it.

April Goal #5: Update my documentation for renters insurance. I have yet to update the pictures and receipts I’ve got stored away with my renters insurance in 2014. This is no good and I’d like to rectify that this month.

And those are my personal finance goals for April! What are you guys trying to accomplish?

My April 2014 net worth update; up $4,000 – April Fools edition

Welcome to April, everyone! It’s a new month, and a new chance to take stock of how my debt pay-down is going. It’s also a good chance to see how I’m doing on goals I’ve set for myself.

Net worth up by $4,000

Let’s take a look at the numbers first

Click to enlarge

Click to enlarge

That top line number has been running wild in 2014. It’s crazy to me to think that my net worth has already increased by $16,500 this year.

However, the gains have mostly but it’s mostly come on the retirement savings side. My debt pay-down hit a speed bump this month, which I was only able to lower by $100 this past month, because I made some last-minute moves into tax-advantaged investments.

Now that tax time will finally be done after this month, it’ll be nice to be able to focus on paying down debt again.

Results of my goals

Goal #1: Pay down debt by $27,000. Off pace. Oh this is bad. Having paid off just $4,400 for the year, I’m more than $2,000 off the pace to hit my goal of paying off$27,000 for the year.

Goal #2: Increase retirement savings by $17,000. On pace. I’ve added $12,100 to my retirement savings already (which sounds crazy). I should be able to hit $17,000 by the end of summer.

Goal #3: Complete the 52-week savings challenge. On pace. I’ve kept up with the 52-week savings challenge which entails saving $1 the first week, $2 the next, and so forth. This past month, I transferred $9, $10, $11, $12, and $13 to my bank account. My emergency fund is sitting pretty at $5,091

Goal #4: Cut my spending on cell phone service. Pass. Oh, I passed this hard. I’ve added FOUR family members to my T-mobile plan now, bringing our average monthly bill into the $30s. By comparison, I was paying around $90 with Verizon.

Goal #5: Volunteer more. Pass! I’ve found some volunteer work I really love. I went into it in more detail in this post, but it can be summarized by saying that I help New York kids with math and help older folks get a little more computer literate — sometimes by helping them with accounting or budgeting. It’s way more fun than I anticipated and I’m looking forward to getting more into it!

And that was my March, y’all. Some wins, one big loss, but all in all, I feel like I’m making progress. How did everyone else do?

Negotiating the best price possible at the car dealership

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Source: John Lloyd via Flickr under a Creative Commons license

So, you’ve done the research of reading all the specifications and reviews out there to find the exact make and model of your next car, but are dreading the next part — haggling with a dealer.

Buying a car at a dealership can truly be a harrowing experience; here are some tips to make sure you get the best deal possible with minimal heartache, after you’ve decided what sort of car you want.

Finding the car

In this day and age, it almost goes without saying that you should start your hunt for the right car on the internet. Dealerships usually advertise very good prices online because they know that they have to appear cheaper than their competitors’ to get you in the door. Use the advertised price to give you an idea of what you’ll be spending.

You might even start negotiating with multiple dealerships online. This way, you have something in writing when you walk in.

But don’t just stop there, since you’re already on the internet, surf over to Yelp.com to read reviews on the dealership itself. Do they have a reputation for being shady?

And avoid add-ons, if at all possible! Dealerships may tack on accessories to add a layer of confusion and justify charging you more than the advertised price. “Oh, you researched that this car has an MSRP of $30,000?” They might ask. “Sorry, but our dealership policy is to add anti-rust under-coating since we’re in the Northeast — and it costs $1,200.”

This step is particularly important. Even if you know that you absolutely have to have certain upgrades — a better radio or spray-in lining for a truck bed or the aforementioned coating, for example — try to find a car with as few accessories as possible. You can almost always get these for less after you drive away from the dealership — especially when you factor in the aftermarket, third-party installers, or doing it yourself.

Test drive

Don’t feel rushed at all. Take a good long walk around the car, feel the fabric and the dash, and take a good listen while you’re driving.

I like to go to dealerships when the sun is shining (check the weather) because rain and the dark of night are pretty good when it comes to hiding imperfections.

A frugal tip: The sales representative may turn on the radio while you’re driving. You might just think they’re trying to impress you with the quality of the sound system. Before you start the engine, ask them, politely, to turn it off. Cars can vibrate, hum, whine, and let in road noise. That little bit of noise that you can barely hear over the radio on your test drive may be what drives you crazy down the road.

Keep every nick in the paint, whine from the alternator, and roughness in the interior, in mind for later when you’re going to negotiate price.

Negotiating the price

One big thing to keep in mind: The sales staff do this for a living, all day, every day. Regardless of whether you think they’re good or bad, honest or dishonest — remember that not only do they know more about the car you’re looking at, they’ve seen people in your exact situation a hundred times and know exactly what to say to get you going.

That said, there are some things that can help you be better prepared.

Have your own financing ready, but give the dealership a chance to beat it- Either be ready to pay with cash or get a pre-approval letter from your preferred bank or credit union beforehand. Then, if the dealership wants to discuss financing, you can try to get them to beat the terms you already have available.

Have other options for purchasing available- If, as mentioned before, you searched for other dealerships, you might already know how much you could get the car for elsewhere if negotiations fall through. This gives you a good idea of your “walking away” price — i.e. the price over which you can just walk away and head to another seller.

Negotiate on the price; do not negotiate on payments- Here is a conversation that’s happened millions of times in the history of car dealerships:

Dealer: So how much were you looking to pay per month?
Buyer: Oh, hadn’t thought about that. I guess I could afford $300 per month.
Dealer: Up to…?
Buyer: Oh…hmmm…I guess I could squeeze $350

In that scenario, the buyer will pay $350. Remember that it’s the total price that matters because that’ll be the starting principal of your loan. Click here to compare car loans. From there, the terms of your financing will determine how much you pay per month. Or better yet, you’ll pay $0 per month because you saved up enough cash to buy a car you can afford. In fact, that’s an even better idea — if a sales rep asks you how much you’re looking to pay per month, tell them “$0 per month.”

Know what manufacturer offers are available- Do your research as to which nationally available rebates are available. That way, you can negotiate on a price and then get the dealer to knock the rebate off that price. Don’t let them fool you into thinking they’re giving you that nationally advertised $2,000 cash back just out of goodwill.

Conclusion

There are many more facets to car-buying, of course — for example a huge part that I left out is getting the most for your trade-in — but hopefully this is enough to get you headed in the right direction. Negotiation and behavioral finance more generally are favorite topics of mine, so feel free to reach out if you want to chat more about this.

Remember, they do this every day, but also remember that at the end of the day, you have a common goal — you want to buy a car and they want to sell you a car. With a little preparation before the negotiation, you can still walk out with the best deal possible.