Unless home is in a major metropolitan area with great public transport, you probably need a car. I have no problem with vehicle ownership. There are two of them sitting in my garage right now, but it’s amazing to think that Americans spend over $9,000 a year on transportation costs. The good news is that you don’t have to spend that much to get from point A to point B. There is a simple way to save money on transportation.
The Bureau of Labor Statistics released a report recently outlining how Americans spend money. The typical consumer unit (defined as either families, single persons living alone or sharing a household with others but who
are financially independent, or two or more persons living together who share expenses) takes home an average of $53,485 per year, and we spend almost all of it.
Cars Are Our Biggest Expense After Housing
Obviously, the biggest expense category was housing. In addition to mortgage or rent, water and electricity bills, insurance, furniture, and property taxes are lumped in to this category. Americans spend $17,798 a year or $1,483 per month on housing. That certainly doesn’t seem like most of us are spending lavishly to have a roof over our heads.
However, the next largest expense was transportation at $9,073 per year, which includes the cost of vehicles, fuel, maintenance, insurance, and costs associated with public transportation, taxis, and air travel. This category was further broken down to show that only $3,580 of the total cost was on fuel and insurance. That means that we are spending over $5,000 a year on other transportation expenses, and the biggest culprit and money suck is car payments.
Car Payments Don’t Need to be Forever Expenses
According to Edmunds.com the average car payment in the U.S. for 2014 was $479 a month with 62 percent of car loans for terms longer than 60 months. Instead of thinking about how much car we can afford, we instead think about how much payment we can make. Sure anyone can have a $50,000 car if they want to finance it over a 10 year period!
I am guilty of falling into this mentality myself. I bought my first new car in 2000 and traded every few years until my last car payment in 2012. I’m all for having a nice car, but you can have a nice car that fits your budget. Pay it off in five years or less. Then drive it for another five or more years. That way you have no car payment for at least half of your life. Car payments don’t need to be forever expenses.
Break the Payment Mentality
We are so used to the payment mentality that a car payment seems like a necessary expense. We even convince ourselves that we are saving money by trading in our almost paid off car for a more fuel efficient model or even worse, a newer model with a lower payment!
Sure buying a fuel efficient car or trading in for a lower payment might save a hundred dollars a month, but if you pay off your car and continue to drive it, that adds a monthly savings of $479 to your pocket.
You can’t adequately live in a car. Cars don’t provide nutrition or pay for doctor visits. Stop looking at vehicles as a reflection of who you are. A car gets you from one place to another. As long as it gets you there safely and on time, it certainly doesn’t need to be less than five years old.
According to the BLS survey, people aren’t spending their hard earned cash on extravagant things. It’s hard to save when it takes the whole paycheck to cover bills. We can always cut back on food, housing, and other expenses, but we still have to eat and supply basic needs. Transportation is the one area that is wide open for significantly lowering expenses. The real no brainer way to save thousands per year on transportation costs is to ditch the car payment.
Where does the bulk of your income go each year? Do you consider car payments to be a normal monthly ongoing expenses?