If you own a car, you’re spending a lot of money on it. If you’re thinking of purchasing one in the future, you could end up spending a lot of money on it.
As a teen, the car is the single biggest hinderer of wealth. It’s one of the only liabilities that you could own from age 16-17, and is one that can take a serious amount of money out of your pocket. By understanding the real costs of owning a car and loss of opportunity that comes with it, you may rethink your current or future ownership
According to Consumer Expenditures in 2017, released in September 2018 by the Bureau of Labor Statistics, the average vehicle costs $9,576 per year to own and operate. That’s a cold hard fact.
AAA, every year breaks down the individual aspects of ownership that lead to these costs (AAA figures add up to a total slightly less than the BLS, because they’re from two different data sets ). Let’s go through the list.
AAA Figure: $3,654 per year
Depreciation accounts for almost 40% of the cost of owning a new vehicle. However you spin it, owning a car is not an investment, it’s a liability, and the second you drive it off the lot, you loose money.
AAA Figure: 11.2 cents per mile/$1,681.50 per year
While it depends on where you live, fuel costs are extremely high, especially for young people. To many of my friends don’t have any cash, because it all goes to paying for gas. Many cars that young people buy also have extremely low fuel efficiency – leading to a much higher gas bill.
AAA Figure: $669 per year
While you should strive to pay for everything in full, and not fall into debt, many choose to finance a car. A coworker of mine recently complained to me: “never buy a car… they screw you on finance, and again on gas. I’m stuck paying all of my wages to avoid the dealership from repossessing my car.” Worse then repossession, if you cant make payments, your credit will be heavily damaged.
AAA Figure: $1,115 per year
Insurance is often a forgotten cost when it comes to cars, especially for young people. For 17-18 year olds, insurance could be double this figure, as you pose a greater risk to insurance companies. It also depends on the type of car you own – usually the cooler, faster, nicer cars will harbor a greater insurance cost.
AAA Figure: $766.50 per year
Don’t forget about maintenance. Many people choose to “forget” about this cost when it comes to budgeting for a new car, which usually comes back around and bites them.
As a high school or college student, it may be nice to own a car, but in many cases it’s not essential. Even if your parents buy the car, you’ll still probably be straddled with fuel and maintenance costs, which add up really quickly. In high school, a car is simply not essential. Many schools don’t allow you to drive until you’re an upperclassman… so you can make due for an extra 2 years. In college, many don’t even allow a car on campus as a freshmen.
Being car-less doesn’t mean being immobile. There are several strategies to use. On a college campus, an electric skateboard or bike could be a great option for getting around campus and to and from a job in town. Calling upon friends and paying gas money for longer trips would be a great option as well. For reoccurring trips, carpooling is extremely cost effective. Finally, if you need to get somewhere and all other options are exhausted, consider Uber or Lyft.
Cutting out the instant mobility from your life will have other unintended (but positive) benefits on your finances. Without a car, it’s more difficult to go and impulsively buy things, like food or advertised products. You’ll see your costs for going out drop like crazy!
If you were to sit out on having a car you’d save $9,576 per year. That’s a lot of cash that you’re now able to invest in cash flow producing stocks and assets. Say you invested that into the stock market: Investing an initial amount of $9,576.00 with regular contributions of $9,576.00 per year could be worth $170,495.04 after 10 years if the annual rate of return was 8.00%.
That’s a down payment for a house (or enough for a whole one, depending on where you live) by just riding a bike to work, rather then a car. Keep this in mind next time you go on Cars.com and look around, or open the door to your ride. Now’s a great time to sell….