One thing that has defined Americans for the past 100 years is our love of automobiles. We didn’t invent cars, but we quickly adopted the lifestyle. We created drive-ins, drive-throughs, car hops and motels. We designed our cities around freeways. We went from cowboys riding horses to commuters driving cars, because freedom is the American way of life. We want to come and go as we please, on our own time and schedule. We are not giving up our cars for anything, except possibly flying cars or personal spacecraft.
It Costs a Lot of Money to Drive
For many Americans, cars are their second largest monthly expense, after housing. For families with two or more newer cars, this can cost thousands of dollars per month for loan payments, gas, insurance and maintenance. Even after a car is paid off, driving is an expensive luxury.
According to AAA, it costs an average of $9,519 to drive a midsized sedan 15,000 miles per year. This was calculated in 2010 with gas costing $2.60 per gallon. If you drive an SUV, luxury car or pickup truck, these costs go way up. Check out the brochure Your Driving Costs on the AAA website for detailed information.
Some People don’t have a Choice
Unless you live in an area with good public transportation, it’s nearly impossible to live without a car in America. If I lived in a city like Boston or New York, I would skip the car and take the subway. Here in sunny Southern California, it seems like a two-hour bus ride to go two miles, then a five mile walk from the bus stop. In many rural areas, it can be a half hour drive, just to get to a store or a gas station. In vast places like Texas and Montana, it takes almost a whole day just to drive across the state. So, the decision to purchase a car is often more practical than personal.
I believe the high costs for automobiles hit the younger generations the hardest. This comes from my own experience, as well as from watching others. Young people are so image conscious that they often buy cars they can’t afford on their limited incomes. And, they do it at a time where they really need the money for more important things. But, a new car shows they have arrived. So, it always seems to be high on the list of wants. Banks, car dealers and insurance companies are happy to take advantage.
What about Opportunity Costs?
If the average American saved just half of the money they spend on cars in their lifetimes, they would almost certainly become millionaires. Take the example above. If a person saved just half of the average cost of $9,519 per year, they would have an investment worth $2,173,441* at retirement. A two-car couple would have saved well over $4 million. That’s a lot of money to give up for a fancy set of wheels.
*This amount was calculated at $396.63 per month over a 50-year working life and a 7% rate of return. It doesn’t include inflation or future value.
The reason I brought this up is because most of the people I know who are cash poor have some pretty nice cars. I have nothing against nice cars for people who can afford them. But, they don’t make a lot of sense for people who are barely scraping by. If someone has a lot of debt and can’t seem to save any money, their biggest problem may be parked in the garage.
Money Saving Strategies
Optimized Purchase – Two effective ways to save money are; buy new cars and keep them for 10 years or buy used cars and keep them for 5 years. It’s considerably cheaper than buying or leasing new cars every 4 years. Investing the savings could make a huge difference in their financial future.
Vintage Rides – My favorite strategy is to buy older cars for cash and drive them until they die. This works for me, because I drive basic American cars and I’m able to maintain them. Used cars are cheap. So, I can get a pretty nice ride, without spending a fortune. I save a lot of money on interest, insurance and registration. If I get tired of a car or run into some maintenance hassles, I just get another one. If it gets scratched or dented, I’m over it.
Limit your Commute – For 25 years, I commuted 40-60 miles per day, round-trip. Anyone who has been to California knows what rush hour on a freeway looks like. In 1996, I had a job 28 miles away that was a 90 minute drive on a bad morning. After I left that job, I refused to commute more than 20 miles each way. I now work 3.2 miles from home. I save thousands of dollars and hundreds of hours per year. The lifestyle change is amazing.
Use your Feet – People are questioning the wisdom of living in suburbia. In some master-planned communities, you have to drive for miles just to get out of the neighborhood. I live downtown, so I can easily walk to shops, restaurants, stores, my bank and the beach. A few years ago, I would drive these short distances. Now, I walk more and enjoy the scenery.
Alternative Energy – For the past 20 years, my dream has been to own an electric car. Ever since I saw the Chevy Impact (GM EV1) in Popular Science, I have wanted one. A low-maintenance vehicle that doesn’t use gas or oil makes a lot of sense. Once people realize it costs 3 cents per mile to charge a battery, they may reconsider the high price of gasoline. Like computers, EVs will definitely get better and cheaper. I have my eye on a Ford Focus EV.
The Bottom Line
The bottom line is that cars are a depreciating asset. They lose up to 20% of their value in the first year and cost a small fortune to own and operate. The less you spend on cars, the more you will have for other purposes.
“We are the first nation in the history of the world to go to the poorhouse in an automobile.”
Will Rogers – American Humorist