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June 6, 2016

Why Your Car is a Major Drag On Your Budget

Why Your Car is a Major Drag On Your Budget

So you finally have a job and you deserve a “big kid” car to go with it. “You’ve earned it,” is what people will tell you. Or how about the idea of, “You can afford it, so why not?” Have you heard the worst one regarding cars? It sounds something like, “Why have a car if you aren’t going to drive it around in the first place?” The key to automobiles is that they used to be simply for transportation, but now they’ve become a necessity to own and operate – and show off. So you might want to ask yourself: do you really need a car? And how are those related expenses affecting your every day budget and spending? Let’s take a look at the following car-related expenses:

Cost of Depreciation

The actual cost of depreciation on a car is something that most people don’t consider. However, you have to think about your car costing you every time you use it, or else you will never be forced to limit the amount of miles that you drive. Working on very basic assumptions, if you can expect 100,000 miles out of your car and your car costs $25,000 to buy (or even much higher than that), then you are spending 25 cents every time you drive a mile, before you even touch the interest to finance your ride. For someone who can make their car last a decade or two then this might be a comfortable number, but just imagine what you are spending on your daily jaunts around town or your twenty or thirty mile commute to work each way.

If you think about your car not as a vehicle for moving you, but as a vehicle for taking your money every time you turn the key and push the accelerator, you can keep more cash in your pocket and delay the time you will need to go buy your next car again. Or, if you really want to save, maybe you should consider buying used, taking the bus, or even biking or walking to work in order to minimize your cost when you can.

Gasoline

The cost of gasoline seems to be a minor one in the minds of many. That being said, gas costs are still extraordinary. Even if you are comfortable with zipping around from a depreciation point of view, the gas costs are only going to add onto your cost per mile. If you are fortunate enough to own a new car, then you could get as many as 30 miles per gallon on average. With gas prices averaging $2.50 per gallon across the United States over the last handful of months, this means your round trip commute to work plus trip to lunch of a combined 60 miles, for example, is already costing you an additional $5.00 per day. The additional costs of gasoline could wind up costing you $100 per month just on the costs of commuting!

Want extra money in your pocket? Minimize the driving when you can. Small habits can wind up turning into big problems if you let them continue on long enough and consistently enough. This is all before you even consider the cost of gas when it hits highs.

Insurance Costs

The costs of insurance can be astronomically high as well when it comes to the general cost of owning and operating a vehicle. If you think about what you are paying for insurance then you just need to think about the actual costs that are directly related to you and your operations, and what stems from the car itself. Because your vehicle damage will be completely covered by the insurance company if you get into an accident, the physical damage costs of auto insurance can be through the roof. That’s why you should at least consider taking the physical damage costs off of the car and receiving quotes for liability insurance for cars with sites like Coverhound. You need to verify that you actually want to strip away your physical damage coverage, but at the same time if you aren’t spending top dollar on a brand new vehicle you could wind up saving significant cash when it comes to insurance quotes.

If you adopt a behavior where you can think of your car as an asset and not an amenity, then you will come out ahead of the game. A vehicle is only meant to transport you around safely and conveniently; don’t let it become a budget leech when you treat it like a showpiece of luxury! Just continue to look at the underlying and hidden costs that are actually associated with your car, and you’ll be able to really see how much your car is really costing you each and every day. Cars may be nice – and often necessary – but when you own one, you’ll have to take some extra steps to stay frugal.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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