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According to Experian Automotive, the average American pays $493 a month for a new vehicle and a little bit less if you lease at $412 per month. Nowadays vehicles are fancier, have more features, and are ultimately more expensive, which causes an increase in monthly payments.
Next to student loan debt, auto loans are one of the leading causes of debt in America. What could you do with an extra $500 in your budget? If you’re not sure, I’ve come up with a great list of 10 things you can do instead of making a car payment.
1. Pay Off Your Debt Faster
If you have student loans like so many young people today, an extra $500 a month goes a long way to making them disappear. I highly encourage you to use Dave Ramsey’s Debt Snowball technique to accelerate your repayment.
He suggests putting every extra dollar you can spare toward your lowest debt until it is paid off. Then use all of the money that went toward that debt and apply it toward your next lowest debt. This is the method we used to pay off $73,000 of student loans in under four years.
2. Start a Roth IRA
Retirement might seem like a long way off, and if you’re in your 20s or 30s, it kind of is. My wife and I started saving for retirement about two years ago, when we were 28ish, and we really wish we would’ve started sooner. When you’re investing in retirement, the earlier you can start, the better.
I would much rather get by with a little less today, than worry about scraping by when I’m older and don’t have as great ability to work. Compound interest is also a magical tool that literally gets better with time. We needed $500 to get started and then you can contribute as little as you want every month, with a maximum of $5,500 a year. To make retirement even sweeter, we opened one for both of us.
3. Build Your Emergency Fund
Eventually disaster will strike, and unexpected expenses will pop up. It’s inevitable. It might be car trouble, a pipe burst, broken furnace or hot water heater, or losing a job. When it happens, it’s so comforting to have an emergency fund set up to cover some, if not all of the expenses.
We’ve used ours to pay for car repairs and miscalculated taxes we had to pay, whoops! We also just bought a house last year, so at some point we will need to fix something. Most experts recommend $1,000 to start with until you pay off all your consumer debt. After that, the suggestion is to save up enough to cover 3-6 months of expenses.
Related Post: Building an Emergency Fund
4. Save Up For Vacation
Who doesn’t love a great vacation! Right now I’m spending a week at a lake cabin with my in-laws and it’s amazing! This was a pretty low cost getaway, but sometimes it’s fun to splurge on a major trip. The best way to go on vacation is to avoid going into debt, and pay cash! $500 a month will quickly add up to a wonderful vacation.
We went to Cozumel for our honeymoon and spent about $2,000 total including all food, hotel, and transportation. That’s only four months of savings! If you want your vacation to be longer or more extravagant, save up for a couple more months and you’ll be all set with none of the stress!
Related Post: How to Save for Vacation and Pay Cash
5. Save For a New Car, If You’re Really Into Cars
Maybe a new, fancy car is your thing! There’s nothing wrong with investing in something you love. However, you don’t have to struggle through with a car payment. If you really want to upgrade to your dream car, or just a fancier car, pay off the one you have, then use that amount each month to start saving for your next car. You can always trade in your car to help cover some of the costs too!
6. Get a Dog (or Cat) and Spoil the Heck Out of it
New pets are expensive, especially if you buy a purebred from a breeder. Even if you just adopt from a shelter, it’s pretty easy to drop $500 on a pet with all the extras. This summer we adopted a new dog named Gregg. We got him from a shelter and it was $280ish just to adopt him. Then the extras kicked in.
A new dog requires a kennel, dog bed, food and water bowls, a few toys, poop bags, a leash and collar, food, vet bills, and tags. I might be missing a few things, but you get the idea. There are a lot of expenses that creep up, and our total costs were right around $500. Then it’s fun to take a little every month to spoil your new pet too! I’m thinking fun Halloween costumes! 🙂
7. Start a Retirement Fund for Your Kids
Like I said before, it’s never too late to start saving for retirement. It could be a really fun gift to your give your kids when they graduate from high school, knowing that you have been investing in their future for the last 18 years. We’ve talked about creating a Roth IRA for our kids and explaining what it is when they turn 18. Then they have the option to keep investing as an adult or leave it sit until they are ready to retire.
A 529 College Savings plan would be great too! CollegeBacker is a simple service for you to get started.
8. Home Improvements or Buying a House
As homeowners, we are always thinking of ways to upgrade and fix up our house. There are so many projects that come up during the course of owning a house, and it’s easier to fit those projects within your budget instead of piling up debt.
This summer we had work done on our chimney, and it was completely stress free because the money was already saved up and set aside! It was wonderful! We put a little money into this fund each month to save for even bigger projects and maybe an addition some day. If you don’t own a house and want to make that step, $500 a month adds up quickly to help build a solid down payment.
9. Buy a Season Ticket Package to Watch Your Favorite Sports Team
This is a little more extravagant, but it sounds like a lot of fun! Going to a pro sports game is expensive, especially if you factor in travel and concessions. But if you live in the same city as your team and truly value attending games with friends and family, it can be a great investment.
Most teams offer a lot of options for 3, 5, or 10 game packages on the low end. $500 might not cover all of it, but if you save up for a couple months, you will pay for an entire summer or winter of entertainment!
10. Host Dinner Parties with Friends
I believe being in community is extremely important! Investing in great friendships means spending time with each other, and what better way than sharing a meal together. Some of my greatest memories with friends involve food, great beverages, and a lot of laughing around a table or grill.
We’ve thrown a couple dinner parties in the last year to celebrate birthdays, and the costs can really add up if you’re not careful and thrifty. But if you are free of a car payment, that $500 will cover a few nice dinner parties with your community of friends. Instead of investing in your car, invest in your relationships with life long friends.
Bonus! 11. Invest in a New Hobby
I’ve learned that adult hobbies are really expensive! It seems that no matter which new hobby I want to start, there is a big upfront cost for equipment and gear. Earlier this summer I bought my first bike as an adult, and before you start picturing me with leather chaps and a Harley, let me clarify, I’m talking pedal bike. It’s used entry level bike to commute around town and it cost me $300. To me, that’s a pretty hefty investment.
Other hobbies are the same way though. Take photography, downhill and cross country skiing, snowboarding, boating, scrapbooking, fishing, and painting. All of these hobbies have upfront costs to get started and to maintain them. And chances are, the more you get into a new hobby, the more money you will spend on it. Getting rid of your car payment will open up more doors to explore new hobbies!
Wrapping It Up
Cars are super important, but they don’t need to cost an arm and a leg. You will have so many options to save and spend elsewhere once your vehicle is paid off. Invest in your future, your home, your friends, or your hobbies!
Let Me Know in the Comments
What would you do with an extra $500 a month?