What Is the True Cost of Owning a Car in 2019?

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Next to housing, one of our biggest annual expenses is transportation. This includes car payments, insurance, maintenance, and even the price of gas to fill up our vehicles.

Overall, our annual transportation costs comes in as our 3rd highest expense category … well behind housing (#1) and close to food (#2).

Unlike with our housing expenses (which continue to rise), we have managed to continually lower our transportation expenses over the past several years.

But despite a continual decrease in annual expenses, our true cost of transportation is higher than what it needs to be.

Why do we care how much we are spending annually on transportation?

I mean after-all … we need to get around don’t we?

Well, in order to build wealth … focusing on the big 3 categories (housing, transportation, and food) is one of the most efficient steps you can take.

Compared to common money saving tips like cutting cable or giving up coffee … those are much smaller opportunities to save money.

On the other hand … cutting back on housing, transportation, and food has a lot more bang for the buck.

Since my wife and I are always looking for opportunities to increase our savings rate, we will need to continually find ways to reduce our housing and transportation expenses.

Note – In terms of food … that is one category that we don’t mind spending more money on … as we believe the best investment we can make is in our health.

And we believe that good health starts with food.

Today I would like to share our true cost of owning a car (or two cars in our case) last year (2019).

What Cars Do We Own?

We currently have 2 vehicles for our family.

The first is our van (almost 7 years old) that we bought new with a low interest rate. It is used to transport the kids around to different events and for family trips. We paid it off in 2019, which I have shared more details below.

The second is a car we purchased over three years ago. Prior to this purchase, I drove my old car for 16+ years … until it finally was too expensive to maintain. We ended up donating this car.

Since I drive over 50 miles a day to work (round trip), we decided to buy a car that got good gas mileage. Our goal now is to drive this car as long as it lasts … hopefully another 16+ years like my last one.

Looking back … we could have done things a lot differently when it comes to minimizing transportation costs. For example, we could have bought used cars instead of new. And we could have bought a house closer to my work, so that I didn’t need a car or at least gotten by with a less reliable vehicle.

The good news is we plan to continue driving our vehicles for many more years … even after they are paid off.

But even though we will eventually pay off both cars, the costs of owning them won’t stop there.

Let’s take a look at how much we spend on transportation per year … from our 2019 numbers.

How Much Do Our Cars Cost per Year?

We had a successful 2019 … when it comes to transportation costs.

During the year, we paid off one of our auto loans, which was an awesome feeling … even though our rate was just over 1%, which is fairly low.

The loan we paid off (car loan #1) was for our family vehicle … a van that we bought new almost 7 years ago. Our plans are to continue driving this vehicle for several more years … while keeping up with the maintenance.

We still have a car loan on our second vehicle (car loan #2), which has a 0% interest rate.

While it would feel good to eliminate this debt as well, we are not in a rush to pay it off with a 0% interest rate. Our mortgage, for example, has a much higher rate at 4.375% … which would be a better option to allocate extra funds.

Paying off car loans aren’t the only transportation costs associated with owning vehicles. Owning a car has more than just monthly payments as you can see below.

Here is a list of vehicle related expenses we paid last year (2019) compared to the previous year (2018) –

  • Car Loan #1 – $2,559.96 (2018 – $2,281.11)
  • Car Loan #2 – $2,951.64 (2018 – $2,951.64)
  • Gas – $2,897.98 (2018 – $2,989.61)
  • Insurance – $850.61 (2018 – $1,327.03)
  • Maintenance – $952.33 (2018 – $2,413.07)
  • Registration – $508.89 (2018 – $421.45)

2019 Total Car Expense = $10,721.41

In comparison, this is what we spent on transportation costs in total the prior two years –

So unlike our rising housing expenses, we have been able to continually decrease our transportation expenses the last 3 years.

Transportation Expense Breakdown

Even though we successfully paid off our van, we still spent more money in 2019 on car payments than the previous year.

We had a goal to payoff our van as quickly as possible last year, so we made extra payments that helped. Overall, we spent $278.85 more on car payments last year. But on the bright side … we have eliminated this expense completely from our budget for 2020 and beyond.

When it comes to the other expenses that make up our transportation costs, we decreased our gas spending by $91.63 compared to the previous year. We don’t really track our mileage, but I would assume we drove about the same both years.

Saving on auto insurance was a huge win for 2019. After years and years of sticking with the same auto and home insurer, I finally decided to shop around and it paid off big time. We saved $476.42 on auto insurance just for switching providers!

Maintenance expenses for our vehicles was also a lot less expensive in 2019 … we spent $1,460.74 less last year. In 2018 we had a bunch of maintenance work done on both vehicles … which isn’t required annually. So maintenance will likely go up and down year to year depending on our required maintenance.

Finally, we did spend a bit more on vehicle registration in 2019 … which was because I paid my car registration twice within the same year. I made a payment early last January for 2019 registration and prepaid the 2020 registration in December. This will ultimately decrease this category next year.

Owning a Car is Not Cheap

Overall, we paid $10,721.41 to drive our 2 cars in 2019. That averages out to $893.45 per month.

That is a savings of $138.54 compared to last year … so a step in the right direction.

2019 Monthly Average = $893.45

That monthly total comes out to 17.7% of our average take home income. We try and budget for $5,000 of spending (take home pay after taxes) each month.

So while we are making progress in lowering some of our transportation expenses, this category still makes up a huge chunk of our monthly spending.

If we were able to cut into that spending even more, that would allow more dollars to be invested back into assets that can grow our net worth and build our cash flow.

While we have been making some good progress the last 3 years … this current year (2020) we will add a 3rd car for our son who just turned 16.

So we need to focus even more on minimizing our overall transportation expenses as much as we can.

Transportation Expenses Will Likely Rise in the Future

I’d like to wrap this post up by discussing how we expect our transportation expenses to rise in 2020.

As I mentioned earlier, we have a 3rd driver now.

Our oldest child just turned 16 a few months ago and now has a provisional license. While we are not in a rush to buy him his own car (and he doesn’t seem to be in a rush either) … we are planning for it this year.

We’ve already experienced higher transportation costs (in 2020) after adding him to our new auto insurance policy. The good news is the costs are manageable at this point … as we still only have 2 cars for 3 drivers. But once we add a 3rd car … then we will see another increase.

Our plan (which I will write on in the future) is to buy our son a used car.

This will be the first time we will have bought a used car and we are looking forward to the cost savings. Hopefully this will allow us to save money on both the vehicle as well as keeping the insurance as low as possible.

On a good note … getting our son a car will help both my wife and I with our schedules and picking our other two children up from school and other events. We don’t necessarily need to worry about getting a ride for our oldest anymore when he starts driving. He is in school sports and is starting to work … so this will help.

Finally, I’ve written about it here in the past … but starting his Junior year (next fall), our son will start taking dual enrollment classes at the local Community College. We won’t know his schedule for a while yet … but his High School and the College are a couple miles apart. And both schools are at least 5 miles from our house.

Having a 3rd vehicle will help with getting him to his dual enrollment classes … which will end up saving us more money in the long run!

Do you hack your transportation costs by living close to work? What other hacks have you done to lower your transportation costs?

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