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About a year ago, my wife and I made it a priority to get rid of most of our non-mortgage debt. And a big portion of that involved our auto loans. Both of us bought our vehicles in late 2019 and used five-year auto loans -- we would have paid more aggressively from the start, but this was when auto loan interest rates were in the 3% range.
So, in early 2023 we each had about two years left on our auto loans and decided to aggressively pay them off with the goal of being auto-debt free within a year. I'm happy to report that we just finished paying my wife's car off last month, and we are on track to have mine paid off by the end of January. The goal is to have two relatively new cars that we own free and clear, so we (ideally) won't have to worry about any major vehicle expenses for a while.
My plan is to redirect the money I was paying toward the cars (a little more than $1,000 per month between them) into my savings. Specifically, I plan to use it to help max out my retirement savings, and add any excess to my regular brokerage account.
How you can find extra money to save
Paying off your car loan quickly isn't practical for everyone. And I'm sure that many readers have already paid for their cars, which is excellent and makes you a bit more financially healthy than most.
However, the main point is that by eliminating any recurring expense, you can add that money to your savings account instead. Maybe you have a gym membership that you're paying for every month, even though you only use it occasionally and prefer jogging outside. Maybe you're paying for magazine subscriptions that you almost never read. Or maybe you're paying for additional features in your cable or mobile phone bills that you could do without.
Maybe you have other debts like credit cards and personal loans where you can accelerate repayment to free up more money to save.
How to find extra money to save
One exercise that I like to do toward the end of each year is to print out the last few months of my bank and credit card statements. First, look for any recurring payments that are auto-debiting from your accounts and ask yourself if these are necessary (like your electric bill), completely unnecessary (like an unused membership), or costs you could potentially eliminate (like subscriptions for magazines you like to read but don't need). You might be surprised at how much you can free up in this manner.
Taking it a step further, when looking through your statements, highlight any non-recurring expense that wasn't a necessary expense. Now, I'm not saying that you need to eliminate every one of these types of expenses -- I like going out to eat as much as anyone. But doing this can draw attention to areas where you might be spending more than you realize.
The bottom line
By focusing on debt reduction, elimination of unnecessary recurring payments, and keeping a close eye on your discretionary spending, you might be surprised at how much you can add to your savings. Even seemingly small recurring savings additions can make a big difference when it comes to your emergency fund and retirement savings over time.
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