Cutting This 1 Expense Could Save You Thousands in Retirement

Did you know that there is one expense that could save you thousands of dollars per year if you cut it out? If you get rid of this expense, you could save an extra $8,000 per year for retirement. So, without further ado, let’s look at the one expense that could save you thousands in retirement if you cut it.

Your car

If you’re like most Canadians, your car is probably your single biggest expense after your home. Cars cost a lot of money, and unlike houses, they do not go up in value over time. Instead, they go down in value. The following are just some of the expenses you can expect to incur as part of owning a car:

• $4,800/year: Annual lease payments on a $400 lease.
• $2,000: Average annual insurance for a 30-year-old in many provinces.
• $2,000: The average amount a Canadian household spends on gasoline in a year.

That’s $8,800 per year — certainly not nothing. What’s more, these costs are completely avoidable. Public transportation costs a few hundred dollars a year for an unlimited pass in most Canadian cities. Two $10 cab rides per day cost $7,300 per year. Biking costs almost nothing. Basically, any transportation method you can think of costs less than driving does.

How much you could save

You could potentially save a lot of money each and every year by getting rid of your car. If you choose public transportation, you could save a full $8,000. If you go with cabs or ride-hailing services, you could save $1,500 — or more if you don’t use them every day. The savings could really start adding up. You could save enough money to retire early by skipping the car.

Investing for retirement

Before concluding, I should mention that saving for retirement is a life-long journey. It’s not enough to simply cut out expenses like cars and vacations; you have to invest what you save, too. In general, it’s a good idea to hold dividend and interest-bearing investments in your retirement accounts, because they provide regular cash income that comes in whether the markets are up or down.

Consider Toronto-Dominion Bank (TSX:TD), for example. TD Bank is a dividend stock with a 5% yield at today’s prices. That means that a $100,000 position in the stock pays out $5,000 per year. That’s a pretty significant yield. And the yield has been rising over time.

Over the last five years, TD Bank has grown its dividend by 7.8% per year. That’s pretty close to the historical revenue growth rate, which suggests that the dividend growth observed here is sustainable. If the stock keeps growing its dividend at the rate it did historically, then investors’ payouts will double in about a decade.

By investing in quality stocks like TD Bank, you can build up a passive-income nest egg that pays you handsomely in retirement. And by cutting out your car, you can free up over $8,000 per year for investing.