Cars Are Your Budget Problem

There’s one thing I’ve found common among people I know who struggle with money problems: Cars. You know these people, maybe you are one of these people, heck I DEFINITELY was one of these people. Modern society gives us guidelines about what percentage of our income should go to a car payment. When you start using BudgetSimple, we even assume that a car payment is part of your budget. But what if it wasn’t?

The United States is a huge country, and in most of our nation, it’s pretty difficult to get around without a car. We’ve become a society dependent upon the auto. It should be no surprise that banks and car companies have convinced us that a new car is a requirement of such a society. But think about the costs a car has:

  1. Car Payment (and interest)
  2. Taxes, Inspection and Registration Fees (yearly in most cases)
  3. Insurance (which is mandatory)
  4. Gas (getting more expensive all the time)
  5. Standard Maintenance (oil changes, tires, etc..)
  6. Expendable Parts (Car Washes, Wiper Blades, Headlights)
  7. Surprise Repairs
  8. Usage fees (parking, tolls, etc..)

And this is just scratching the surface. Does anything else in your life have this type of financial drain? Even children start to seem like quite a bargain compared to an automobile. “OK, Phil, point taken, but I need a car to get to work, so this is just a fact of life.” That’s true in a lot of cases, but here are some things you can do to reduce the burden.

First, ask yourself if you really need a car. Most families have two cars, so it’s an easier question to ask yourself if you really need two cars. Is the convenience worth the cost? If you live in a city, you almost certainly have bus or other public transit options. If you live under 10 miles from your job, riding a bike to work is not only a feasible option, but it has a multiplying effect of improving your health as well.

If you’ve decided you absolutely need your car, the first thing to look at is the cost of the car you own. For many years, the best wisdom was that you needed to buy a new or newer car because of the warranty. If you grew up in the 70s or 80s, you saw that a used car was just a repair bill waiting to happen. The good news is reliability has DRASTICALLY improved. There are very few cases where buying a new or newer car with a warranty will save you more money then buying a used car without one. When I say used, I mean at least five years old. Why this old? The largest depreciation has already occurred. Don’t get me wrong, all cars will continue to depreciate, but there is usually a sweet spot between 5-10 years old where the value decreases at a slower rate, and also you are not driving something “embarrassing”.

The real money saver is if you can buy a car in cash. I try to buy cars that are around $3000-5000. It takes a little more effort to find a car in good condition in this price range, but if you do, you can almost always drive it for five years and sell it for only a $1-2k discount. You not only save in interest, but you also save in depreciation. Do research to ensure the car is not prone to costly repairs (german cars are notorious for this).

Buying a car in cash also lets you save on insurance. You are not required to carry comprehensive coverage anymore, and this is usually a huge savings. Repairs are often cheaper on older cars as well, especially if you can find one without a ton of fancy computers.

Saving on gas and maintenance is really just a matter of driving less. If you can move closer to your job, that’s great. If not, see if you can carpool or take other transportation just once or twice a week. It’s not as convenient, but the savings really starts to add up. It’s also important to stay on top of maintaining your car. You may think you are saving money by letting maintenance slip, but that is usually not the case. While oil doesn’t actually need to be changed every 3,000 miles in modern cars (see your owners manual for recommended intervals), things like brakes get more expensive if you let them slip, and not washing your car will cause it to rust up quick.

I plan to do another post at some point about cars, but let me know the ways you save money with your transportation. This is a big subject for me, as I started one of the first websites forused cars for sale by owner and I’m happy to give any car buying advice you might have!