There are numerous studies on how Americans spend their income as a percentage of their pay. A common claim is that households spend approximately 75% of their income in only 4 areas: Housing, Transportation, Food, and Clothing. The following chart which shows spending by category over the 73-year period of 1941-2014 does show how these categories, especially the first three, are far greater than the others. In more recent years, healthcare and entertainment spending has exceeded clothing.
Americans ❤️LOVE❤️ their automobiles. I’m not saying “you all love your automobiles”. I love mine, too. In a personal blog post I wrote called “Don’t Take My Advice“, I mentioned how my wife and I had been pretty sensible with money throughout our marriage, except when it came to purchasing vehicles. Between 2010 and 2016 we conducted seven vehicle trades (this does not include the purchase of 2 vehicles for our daughter). SEVEN! Fortunately, we realized how crazy this behavior was and have kept our current vehicles for seven years now.
We had allowed ourselves to start playing the justification game. They might sound familiar. “If I trade my vehicle, I can get a lower interest rate.” “We really NEED the extra seating/cargo space/safety features of this new vehicle.” “If I trade now, I’ll avoid maintenance costs on this vehicle, which would likely cost me as much as a car payment.” “I can’t be seen in this vehicle, I have to look successful in order to become successful.”
The reality is cars are expensive to operate. The current federal mileage reimbursement rate is 58.5¢ cents per mile. This factor covers the owner’s costs for fuel and wear & tear maintenance (oil changes, tires, etc.) on personal vehicles used for business-related travel. Insurance is another, often expensive, cost factor.
But we live in an automobile-centric society. For some, being without an automobile would be a huge inconvenience. For others, it would prevent them from making a living. But there are ways to reduce the overall costs if your current situation is preventing you from meeting your other financial goals.
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Buy quality over style. Review automobile resources that provide total cost of ownership data, factoring in reliability and maintenance costs, fuel efficiency, etc.
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Buying a quality USED vehicle often saves money on the purchase price (2022 being an exception in some cases due to the chip shortage which has impacted new vehicle availability and increased the prices of used vehicles). The higher price of a new vehicle rarely justifies the cost over the reduced longevity of these highly reliable vehicles.
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Plan trips to combine multiple destinations in order to eliminate more frequent trips.
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Shop locally, ideally within walking or biking distance. You might be able to save $5.00 on a pair of shoes by driving 20 miles to the superstore, but if the 40 mile round trip actually costs you $23.40 in true vehicle costs (40 x 0.585), you are better off spending more on the shoes and helping your local merchants!
Want to feel the true impact of your vehicle usage? Try setting aside the 58.5¢ per mile you drive. Pay for your gas from this amount but leave the rest in an envelope for future car maintenance. You might be surprised by how much you’ll need to reserve, but you’ll be grateful to have it when tires and repairs are needed.
Watch these informative resources on this topic:
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PBS’s Two Cents: How Cars Keep You POOR!
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Mr. Money Mustache’s My $100,000 Van