How much does a car truly cost?

November 17, 2011 — Leave a comment

How much does a car truly cost?

We love our cars. They do more than get us from point A to point B; they give us the freedom to drive the open road. They allow us to break loose of the everyday mundane and experience the extraordinary. What price do we pay for this perceived freedom and how much does a car truly cost?

According to the Bureau of Labor Statistics, we spend on average $4,500 a year to pay for and maintain a car. That means you need $6,000 in income if you’re in the 25% tax bracket just to have a car. That equates to around $3/hr of your normal wages. If you’re making minimum wage, that’s almost half of your income!

It looks like many people are driving around in paid for cars because when you add up the finance and lease charges, the total is between only $550 – $800 for a complete year. When I purchased my new car, my payments were $500/month so I was paying $6,000 per year. However, now I have my car paid off so I’m back to $0 a year on car payments.  This is why I think new cars suck (if you can’t afford it).

The purchase price and lease amount on a car are fairly elastic – meaning we can mostly control how much we pay monthly. If you made the same mistake as I did and bought a car you couldn’t afford, your payments are very high. However, if you’ve paid your car off, then your monthly payments could also be $0.

The majority of the costs for automobiles are inelastic – we can’t do much to control them. At best we have a small amount of control because we can drive less to save on gas and drive better so our insurance doesn’t increase. However, on the whole we’re still paying a whole lot of money on these two expenditures. The total gasoline charges alone average between $2100 per year and the average insurance premiums are around $1,000 per year.

The alternatives?

1. Use public transportation

Many of my friends already do this in bigger cities; especially in the Northeast where mass transit is quite common. However, in the Midwest where I’m from, driving is a part of life. It’s sad how little public transportation there is in cities such as Dallas, TX or Tulsa, OK.

2. Drive down the normal costs of owning a car

– Shop around on car insurance to ensure you’re getting the best deal

– Maintain the maintenance on your car to maximize gas mileage (correct tire pressure, etc)

– Bundle trips as much as possible by visiting all of the stores in a give area at once

– Car pool with co-workers

– Drive smart (don’t over accelerate, speed, tear up your vehicle, etc)

Check out this website that gives more money saving gas tips.

3. Live close to your work

This could potentially solve some problems, but I realize it’s not a feasible option for some because of affordability, or preference on school systems. However, living close to work can allow you to save money and save a lot of time. My parents were very lucky as they lived about 1 mile from the school they both worked at!

Ideally, the US will need to cut down on the required driving by working on an infrastructure of self-contained villages. I think it would be easier now than it ever has been before because of the ability to work virtually. Travel would still be required, but it would cut down on traffic in huge cities such as Los Angeles or Houston where two hour commutes aren’t out of the ordinary.

All this being said, I don’t see our love affair with cars ending anytime soon. According to the BLS, in 2010, on an average day, 67.6 percent of the civilian population aged 15 and over drove; those who drove spent on average 1 hour and 18 minutes driving.

I like driving. In fact, I’m still trying to convince my wife to take a year off and tour the great United States in an automobile of some sort! It wouldn’t be cheap, but the sites we’d be able to see would make it all worth it.

However, until that point, I’m going to continue to attempt to drive down the costs of owning/operating an automobile. What methods do you use?  Do you think this is accurate as to how much a car can truly cost?

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