It’s the # 1 wealth killer in your household budget



As a personal finance specialist, I find two things I don’t like about auto payment trends. One is the growing preference for auto loans with terms of eight years or more. The other is the average amount of payments people accept.

An American financial planner named Jeff Rose goes down hard on car payments in a recent article he wrote for Forbes. “These days we blame everything corn our car payments for our inability to move forward, ”he wrote.

Mr Rose cites US figures showing the average monthly payment for a car is US $ 523. Analysis firm JD Power says the average car loan payment in Canada is closer to $ 630. Can’t find the money to save for your retirement? How about buying a cheaper car and spending some of your car payment budget on savings?

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Personal finance frugalistas would tell you to buy a used vehicle, or find a cheap and reliable new vehicle and drive it until it breaks down. I am not that militant. Here is a photo of the odometer of one of our family cars as they approach the 200,000 kilometer mark. Driving such a long car is a first for us.

Rob Carrick’s car odometer as it neared 200,000 kilometers.

Buying a new car often means better fuel economy, better safety features and less maintenance expense. But depending on your household budget, there should be limits on your car expenses. Here are some thoughts:

  1. One automobile debt at the same time: Try to avoid being a two-car paying family if possible.
  2. Maximum loan term: Previously, five years was the longest term for a car loan – this is also a good rule today.
  3. Maximum payout: Every family is different about this, but a good rule of thumb is to take a car payment that doesn’t interfere with your ability to set aside money for your children’s retirement and post-secondary education.

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Looking to the future: retirement

That’s the name of my new retirement podcast, which you can listen to here or download at itunes Where Spotify. There are three episodes, one aimed at millennials, one for Generation X, and one for Baby Boomers.

Rob’s Personal Finance Reading List …

CRA targets TFSA and RRSP abuse

The Canada Revenue Agency issued guidelines on financial planning and bold investment strategies that amplify the tax savings of Tax-Free Savings Accounts and Registered Retirement Savings Plans.

Yes to the marriage proposal, no to the engagement ring

A blogger’s take on why she didn’t want to expensive engagement ring her fiance bought. “Call us the most millennial couple ever, but we really value experiences over things.”

How to use leftover greens before they spoil

Food wasted is wasted money. Plus, sticky spinach or lettuce is disgusting.

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Why seniors should have more money in bonds

This is an American commentary tailored to this country’s retirement system, but I am including it here because of an interesting and contrarian position challenging the idea of holding of dividend shares instead of bonds in a retirement portfolio.

Today’s financial tool

The Baby Boomers Club is a new blog for sharing ideas on retirement, investing, health and more.

Ask Rob

Question: I am mainly invested in ETFs. In the current climate, would I do well to move out of Canadian dividend ETFs and turn to international dividend ETFs?

A: Movements like this correspond to market timing, which means managing your portfolio based on guesses about what is going on in the financial markets. A better approach – it’s also easier to live with – is to figure out how much of your portfolio should be allocated to the Canadian, US, and international markets, and then stick to that combination. It’s diversification – it gives you exposure to all regions, but limits your risk when one of them underperforms.

Do you have a question for me? Send it my way. Sorry, I cannot respond to each one personally. Questions and answers are edited for length and clarity.

In case you missed these Globe and Mail articles on personal finance

  • The fuse has been lit on Canada’s debt bomb
  • Ten tax tips for the fourth quarter
  • Don’t try to pick superstar stocks – you will fail (for Globe Unlimited subscribers)

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