How to Save Money on Driving

Suburban sprawl and the desire for luxury products, to impress people you probably don’t care about, are two key drivers behind the astronomical rise in vehicle prices over the past two decades. The average car payment in the United States has risen to $523 a month! People need to save money on driving!

Does no one else recognize how absurd this statistic is? This is a PER CAR payment, and most households have at least two cars.

save money on driving
Driving less will save you more!

This means the average American household spends over a $1,000 per month on just car payments! The average mortgage payment for a 30-year fixed rate loan is $1,022.

More on Car Than House

The average American household spends more money on cars than on the place they live! There are so many other alternative, productive ways you could spend $1,000. No matter how “penny smart” you are with your small purchases, spending this much money on cars, every month, will cripple almost anyone’s budget.

Beyond the car payment, there are a lot of “hidden” costs that car owners don’t consider: registration costs, property taxes, insurance, gas, maintenance, and the decline in market value.

I have performed in-depth research on these various factors to determine how expensive it is to own various car models.

Facts/Assumptions

  1. The average car owner keeps their vehicle for 6 years
  2. Most vehicles lose 65% of their value in the first 6 years of ownership
  3. The average American drives 13,476 miles per year
  4. Average cost for a gallon of gasoline is $2.50
  5. Property taxes were calculated using the State of Kansas’ estimator (other states are similar)
  6. All vehicle prices and mpg estimates were obtained from their manufacturer’s website. Here are the shocking results I discovered! (this is without maintenance too)

The trade-in value is the original purchase price, less the 65% decline in value over the 6 years. There are huge discrepancies between the decline in value, insurance payments, and car taxes.

The more expensive the car, the larger these values get. The least expensive car, of the ones I selected for my study, was the Honda Civic, and that car costs over $5,000 per year! If you factor in oil changes and any accidents, the cost would come closer to $5,500.

The first round of research assumed that the buyer paid for the vehicle in cash (no financing). This is extremely optimistic, and we know that most car buyers finance their car purchases for 3-5 years.

When cars are financed, the costs per year get even larger.

Additional Assumptions for Financed Cars

  1. All the same assumptions as the first round
  2. There was a 20% down-payment on the car’s purchase price
  3. Each car was financed for 5 years at a 6% rate I wish I could say it got better, but the results only get worse.
save money on driving

The Mercedes now costs approximately $10,000 a year!

To put these costs even more into perspective, I calculated the amount of money you could have had if you bought a car model that is more expensive than the Honda Civic.

I did this by taking the difference between the costs per year and investing it in an S&P 500 index for 40 years at 11% (read these articles to learn more about the investing assumptions).

How Much Money You Lost

If You Financed the Car

I think it’s extremely important to revisit the purpose of a car; a car’s purpose is to provide you with reliable transportation from point A to point B! A car’s inherent purpose is not to impress your neighbor and break the bank!

If after reading this article, you still decide you want to buy an expensive car, go ahead. Just be aware that you are depriving your future self of a substantial amount of money!

These are a few easy ways to cut down your driving costs.

1. Buy a Reliable, Used Car You Can Purchase in Cash

Yes, driving a beater car SUCKS, but you will not have a car payment every month. There will NEVER be a mathematical justification for getting rid of a beater car to buy a new car. The maintenance costs for the beater will ALWAYS be less than the decline in value for the first year of a new car.

If you can pay cash for a car, then go ahead and buy it (I’m not against you having a nice car). I am against you having a nice car that you cannot afford.

A good rule of thumb for car purchases: if you can’t pay cash for it, you can’t afford it. Also, never lease a car for personal use; you are only “owning” the car for the years it has the biggest decline in market value. This alone will save money on driving (A LOT)!

2. Drive Less

I firmly believe that most American families don’t need two (or three or four) vehicles. Many people have the option of biking to work, taking public transportation, or carpooling with their spouse or friend.

If you ever “need” to get somewhere (and your spouse has the car) you can now afford $5,500 in Uber rides!

3. Buy a Fuel-Efficient Car, With Low Insurance Premiums and Property Taxes

Generally, the cheaper the car, the lower the property taxes and insurance premiums. Also, you can significantly cut your gas bills by purchasing a car that isn’t a gas guzzler! All this will take is a little research online. You are fully in control of this decision!

Conclusion

The desire for luxury products, to impress people you probably don’t care about, are two key drivers behind the astronomical rise in vehicle prices over the past two decades. The average car payment in the United States has risen to $523 a month! People need to save money on driving!

Hopefully, this article has provided you a systematic approach to purchasing a vehicle!

If you liked this article, be sure to subscribe, share the article, and check out my popular articles. Additionally, here are more articles about investingmoney managementretirement planning, and early retirement!