Some people get their first car when they turn 16, eagerly awaiting the big purchase (or gift) for months in advance. Others get one after graduation from high school, while more patient people wait until they graduate from college to get a car and start their “adult life.” But one way or another, most Americans eventually end up buying a car and relying heavily upon it. After all, a car is part of that whole “adult” thing, right?
There are some people who choose to remain car-free, especially if they live in large cities where parking is expensive, traffic is bad, and public transportation is plentiful. And some others are unable to afford a car, regardless of whether they want one or not. But the vast majority – around 95% – of American households owns a car. And many households with two or more drivers often have two or more cars. While cars definitely make life convenient for traveling long distances, they’ve also become a frequently-used method of transportation even for the shortest of trips. It’s not uncommon to see people using cars to get to a store that’s a mile from home, or to drop off children at the neighborhood school ten blocks away.
A heavy dependence on cars is not great for air quality and the environment in general, or for the health of people who opt for driving instead of walking or biking short distances. But from a financial perspective, what’s the impact of driving and car ownership?
Consider the Financial Equation
All too often – and definitely encouraged by vehicle marketing (“only $349 per month!”) – people tend to look at the monthly car payment to determine whether they can afford a particular vehicle. Things like the total purchase price, the total interest to be paid over the life of the loan, insurance costs, taxes and fees at the time of purchase, annual registration fees, gasoline, tolls, parking, and maintenance are often brushed over as if they’re insignificant. And yet those expenses can easily add up to become a strain on a household’s budget, eating away at a family’s opportunity to become financially secure and eventually financially independent.
If you already own a vehicle, challenge yourself to keep careful track of all vehicle-related expenses for several months (don’t forget to include annual expenses like registration fees in your calculations). You might find that your actual average monthly expense is more than double the car payments that you may have used to decide whether you could afford your vehicle.
Do the Math
If you don’t already own a vehicle, or if you’re considering getting a new one, first of all – congratulations! It’s easier to make the decision to not get a car in the first place or to opt for a low-priced used car than it is to get yourself out of a high-cost car situation after you’ve made your purchase. Don’t let yourself be swayed by marketing material and monthly payments that appear to be within your budget. Do the math. Calculate the total cost of the car, including the interest payments if you’re considering financing. Find out how much the insurance will cost. Look at the mileage and calculate how much you’ll spend on gas per year with your average driving habits. Call your county clerk and determine how much you’ll be paying in registration fees over the next several years (registration fees are tied to the value of the vehicle, so you pay a lot more to register a $35,000 SUV than to register a $5,000 used car). If you live somewhere that has a lot of toll roads and/or parking fees, add those expenses into your calculations too. Look at online reviews for maintenance costs and see what the average repair expenses and frequency are for the model you’re considering. Add everything up and look at the total amount. Then do the same thing for a lower-cost vehicle (a good-quality car that’s several years old but well-maintained).
And then calculate the cost of not owning a car at all. How much would you have to pay to get a used bicycle that you can ride to work? How much is a bus or train pass in your area? How much would it cost to rent a vehicle if you need one occasionally? Does your city have a car-sharing program? Look into the options available to you, and get to know other people in your community who have opted to not have a car. Learn from their experiences – they’ll have all sorts of insights that will help you decide if going car-free is the right choice for you.
Old vs. New
From a financial perspective, going without a car or purchasing a good used vehicle (several years old if you want to optimize your car expenses) will both be better options than buying a brand new car. If you do buy a used vehicle, limiting how much you drive it will keep your maintenance and gasoline costs on the low end, so you can continue to minimize your total vehicle expenses long after the initial purchase. If you want to remind yourself how beneficial it is to keep transportation expenses as low as possible, use a financial calculator to see the long-term payoff: Take the total amount you calculated for owning a new car, and subtract the amount you’re going to end up spending to have an older used car or no car at all. See how much the difference, invested annually, will amount to by the time you’re ready to retire. You might be surprised to see how much better your long-term financial picture looks by just making this one small deviation from the average lifestyle.
Frugal Babe is a mid-30s American wife and mama who has been careful with money since childhood and loves the flexibility that her frugality has given her. She is the face behind the Frugal Babe website and a contributor to the CareOne Debt Relief Services blog, a community that provides debt consolidation and money-saving advice.