I recently told my friend about a great auto rate at CNB. He bought a Prius a year ago and has a loan with a 7.5% interest rate. I crunched some numbers to show him what his payments would be and the amount of money he’d save in interest if he was approved to be refinanced at 4.74% APY*.
Over a five year period, he would save almost $2,000. No brainer, right? He ended up passing on it.
You see, he lives out of state and to get the deal he had to agree to open a checking account and have the payments automatically deducted. He thought it would be too difficult to have a checking account out of state. I told him he could use his current bank’s online bill pay and send the payment amount to his checking account each month, but he still thought it too troublesome.
When you look at his savings in the long run and what that 2K could do in a Roth IRA, look at the possible returns:
- Roth IRA in 10 years at 5%…$3,257 at 8%…$4,317
- Roth IRA in 20 years at 5%…$5,306 at 8%…$9,322
My friend falls into the way numerous members of Generation Y behave financially. Many of us don’t like to think about how much we could have in the future if we looked into ways we could save today.
Instant gratification surrounds us everywhere we go; 0% down, no monthly payments for a year, no interest for three years. All of these deals are thrown at us and we feel like they are too good to pass up. Look at some of these statements members of Gen Y make when it comes to saving:
- “I can’t socialize and save.”
- “Why save when you can reverse save?” Reverse saving: spend today, pay tomorrow
- “When I settle down, I’ll save.” Saving is for older and married people
- “I love spending money; what else am I going to do with it?”
- “I just know something great is going to happen to me.”
- “Banks only care about people with money.”
The skewed view that you can spend now and worry about your nest egg later is one reason all generations are contributing to a negative savings rate. It’s also the reason it is going to get harder and harder for people to truly retire. Do your future self a favor and talk to someone about the benefits of putting money away, and refinancing high interest debt.
The early bird gets the worm, and the early saver gets to enjoy the golden years w/o having to have a part time job!
* Annual percentage rate quoted above available for loan amounts $30,000 or greater for borrowers who meet credit qualifications. APR will be adjusted for different loan amounts. Loan fees and certain restrictions may apply. Auto loans subject to qualifications. Member FDIC.