Plan ahead. Work hard. Retire young.
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  • How Much is My Car Tax?

    When buying a new (or used) car, it may be worthwhile to look at how much you'll have to pay in taxes. In some states, this could make a significant difference in the overall cost of ownership of the car.

    Suppose, for example, that I want to buy a new 2011 Toyota Camry. How much is road tax for my car? The answer is, it depends on the state. Some states, but not all, charge sales tax on cars, so that new Camry could have a couple thousand dollars in sales tax added on, increasing the price difference compared to an older car that's had time to depreciate.

    You also will need to pay registration and title fees; these are technically not a tax, but it works out the same way. Every year, you'll have to renew your tags; you send the government a check and they send you a new sticker to put on your license plate. The cost of the renewal again varies widely by state; generally it depends on the value of the car. The rules for how much things cost often depend on the weight of the vehicle as well.

    Still want to know what the tax will be for a new car? The rate is set by the state legislature and is subject to change, so go to your state's website - they should have that information available.

  • Buying a New or Used Car

    You have, no doubt, heard the conventional wisdom that it is always smart, financially, to buy a used car rather than a  new one because they depreciate so much in the first three years. Ten years ago, this was probably even true.

    These days, however, it's not so clear-cut as all that. Due to a number of factors - more demand for used cards, less production of new cars, Cash for Clunkers - the price gap between new and used cars has narrowed dramatically; in unusual cases, used cars have sometimes gone for more than new models!

    When buying a car, first decide what type of car you want and what you're looking to spend. The ideal, of course, would be to get what you need for a low price and pay in cash., but of course this isn't always possible. Once you've decided what car you're interested in, then consider the price difference between buying new and used and ask yourself whether the extended warranty period and lower mileage are worth the price difference. Also, be sure to take taxes into account, particularly if you're looking at energy-efficient vehicles; your state, for example, might offer tax credits for the purchase of new electric or hybrid vehicles.

    Get the financial stuff figured out, and then you can concentrate on picking out the right color..

  • Affordable Auto Insurance

    One of the hardest parts about saving for retirement is reducing your monthly expenses so that you actually have money to save. If you drive a car, one of your "fixed" expenses is going to be auto insurance; after all, it's required by law. But are you spending more than you need to?

    How much car insurance you need naturally depends on several factors, most notably the value of your car. If you're driving around a piece of junk worth a thousand dollars or less, you probably don't need collision or comprehensive coverage; after all, why pay to insure the car when it's probably destined for the junkyard within a year or two anyway? You should probably be saving your money so you can purchase a new car in cash when the current one dies.

    On the other hand, you don't particularly want to skimp on liability; remember, if you do happen to cause an accident, you want to have enough insurance to cover the total bill so that your personal assets aren't at risk. Even if you don't have much in the way of assets, you could still wind up with a judgment against you. Liability insurance is required by law, but if you have the option of how much to buy, this isn't the place to get cheap!

    On the other hand, if you have a nicer car, it's worth carrying enough insurance to cover replacing the car if something happens. Insurance is what we call a negative expectation investment to lower variance: you pay more than you expect to get back so that if something does go wrong, it's not a major disaster.

    So once you've decided what coverage you need, how do you get the best rates on that coverage? It goes without saying that you should start by shopping around, although you shouldn't automatically go for the best price; customer service can be important as well. For example, when the author's car was damaged in a hit and run, his insurance company (USAA) took care of everything, including scheduling the repair and arranging for a rental car for a week, with no trouble at all.

    Naturally, your driving history influences how much you'll pay; more than an occasional traffic ticket can send your rates shooting up,  especially if you're convicted of an alcohol-related violation. You also want to avoid ever dropping your current auto insurance without having other insurance in effect first; if you're without insurance at all, you're basically at the mercy of the insurance companies.

    There are also ways to lower your rating. For drivers under 25 years old, many insurance companies will give a discount for getting good grades, as they believe that good grades indicate someone who takes responsibility and thus will also be responsible behind the wheel. Similarly, a high credit rating also helps get the best rate.

    When it comes to the car itself, the insurer would naturally prefer that you have a car less likely to be stolen; this could be because it's a model that is stolen less often or because you have some type of anti-theft or theft recovery system in use, such as the club or Lojack.  Cars that have better crash ratings are cheaper to insure as well, as they're less likely to be totaled in a crash. And of course, a more expensive car costs more to insure as well.

    Perhaps the largest discount comes from having multiple vehicles insured with the same company, so make sure that everyone in your household is under one policy! The author saved $75 per month simply by moving his wife onto his policy when they got married. Many insurance companies will give you a discount when you buy multiple policies (auto, renter's, etc) as well.

    Auto insurance is one of those things that, unless you don't own a car, you simply have to have. It's worth taking the time to bring the cost down as much as possible.