Posted Date: March 8, 2021
Cars are a necessary evil. Most of us need one to commute to work, run errands, meet up with friends, and go on road trips.
But cars can also be one of the most expensive parts of your entire budget.
One insanely easy way to save money fast so you can travel is by making sure you are buying and using your car the right way.
Let’s take a look at how you can save thousands of dollars per year by making smart decisions with your car.
Do you know how much your car is actually costing you per year?
Cars are expensive. Sometimes when we think about the cost of owning a car – we think about the price of gasoline and forget about all of the other major expenses that comes with owning a car.
In addition to gas, you have monthly car payments, insurance, oil changes, maintenance, safety and emissions inspections, car registration, cleaning costs, and more!
According to the Consumer Expenditures report in 2019 by the U.S. Bureau of Labor Statistics, the average vehicle costs $10,742 a year to own and operate.
That’s a lot of money!
To break it down, the average car owner spends $4,394 a year to purchase the vehicle (car payments), $2,094 on gasoline, and $4,254 on other vehicle-related costs like insurance and maintenance.
No wonder owning a car can often feel like throwing money down the drain.
Cars Depreciate in Value
One of the biggest downsides to owning a car – especially if you buy new – is that a car’s value depreciates rapidly. To depreciate means that the value diminishes over time.
And a car’s value tends to depreciate rather quickly compared to many other purchases.
Different vehicles depreciate at different rates, but in general, new cars lose 23.5% of their manufacturer’s suggested retail price after one year – according to Edmunds.
It gets even worse. After 5 years of ownership, your car’s value will have depreciated by 60% on average.
After that, depreciation slows down quite a bit – but think about that. You could buy a brand new car for $25,000 or buy the same make and model that is only 5 years old and purchase it for around $12,000.
A 5-year-old car will still work great, your car’s value will depreciate slower, and you’ll save thousands of dollars by buying used.
You Pay Per Mile with Your Car
One of the biggest lessons with learning to cut back on your car expenses is that you pay per mile – not per month.
The less frequently you use your car, the less you have to spend on it. If you have a car payment, obviously those come through every month.
But the other costs, such as maintenance, gas, and repairs, come quicker the more often you drive.
For example, I used to have to drive to work. I had to fill up my gas tank every other week at best, but often I was filling up my tank weekly.
Now I work from home. I’ve filled up my tank once in the last two months!
I would have filled up my car 6 times in that same amount of time. That’s at least $120 in gasoline savings over those two months. If I extend that to an entire years worth of gasoline savings, I’d save $720 annually.
Not to even mention all the wear and tear that I am saving by letting my car rest. By doing that, I’ll preserve the longevity of my car, hopefully extending the life of my car by several years. Anytime you can put off purchasing a vehicle for years, you are saving thousands of dollars.
If you want to minimize your car’s depreciation – the simple solution is to drive it less.
Now that we’ve covered the true cost of car ownership, and even have a hard figure of how much the average person spends on their cars per year, let’s take a look at some of the ways we can quickly reduce how much money we spend on our cars.
It doesn’t matter what your car looks like
It’s okay to own an old car. Actually, it’s more than okay. For some reason, we live in a pretty crazy culture where the type of car you own seems to mean a whole lot.
If you want to save thousands of dollars per year, it’s time to unlearn that. What type of car you own does not matter one bit. It doesn’t say anything about who you are or your worth to society.
I used to repeat this to myself many times as I drove to and from work in my 2000 Honda Accord.
The purpose of a car is to get me from one place to another.
As long as my car can get me from point A to point B, then it doesn’t matter how old it is, what it looks like, or what other people think about it.
If I know that I am saving thousands of dollars on car expenditures by driving the car I drive, I’m going to be pretty happy about it.
For some people, being okay with driving a car that isn’t a status symbol will be harder than for others. But if you really want to pad your wallet, you may have to choose an older, cheaper vehicle than your dream car.
Buy what you can afford
I drove an old car. It was not pretty.
That may be the understatement of the year.
The paint from my car was peeling off like it had been laying at the beach on a July day and fell asleep without putting any sunscreen on.
Yet, it drove beautifully.
But before I get into the details of my car – let me tell you about how I came to get my car – and the options I had to choose from.
When I was a senior in college, I was driving to work on the freeway when I heard a noise I hope none of you ever hear come from your car.
Clug, clug, clug, clug.
I immediately knew something was wrong. I pulled off the freeway, called my dad to tell him what happened and what I was hearing. No matter how many times I tried turning the ignition, my car would not start back up.
A tow-truck came and picked it up, and that was the last time I ever drove in my car.
Suddenly, I found myself in an interesting situation.
I was a broke college senior. I had $11,000 in student loans that I needed to pay back. And now, I didn’t have a car.
I worked 20 miles from where I lived and went to school, and public transportation didn’t go near my office.
I had some money saved up in my bank account that I was hoping to put down on my loan payment as soon as I graduated, but it turns out I was going to need it for something else.
I had a choice. What type of car was I going to buy? I really liked my last car, but after having that experience, I was hesitant to buy the same brand.
Essentially, I had 3 choices. I could buy a new car, a slightly used car, or a heavily used car.
I thought about my choices, about what I wanted to do in life, and I knew I didn’t want to be tied down by a huge car payment. So a new car was out of the question.
I didn’t want to take out a huge loan so that I could drive a car I would eventually plan on selling so I could travel. I’d waste thousands of dollars by doing that.
I could buy a slightly-used car for about $10,000 and hope to sell it for a reasonable price when I set off to travel or I could go cheap.
I didn’t have enough money to buy a $10,000 car with cash, so I decided to buy the type of car I could afford.
In the end, I decided to go with what I could actually afford today, without having to take out a loan. I bought a used 2000 Honda Accord with 189,000 miles on it. I paid for it in cash with the little savings I had in my account for $3,500.
That ended up being the best decision I could have made in terms of buying a car.
Why was it the best decision I made? Because my car did exactly what I needed it to do. It got me to and from work, the grocery store, and around town without placing a heavy debt burden on my back.
I owned and drove that car for four years before I quit my job to travel the world. Knowing that I was going to eventually travel long-term, I knew that I needed a car that was going to be functional while helping me save as much money as I could for my trip.
If you divide the cost of my car over the four years I owned it, I spent $875 per year to own my car. Compare that to the national average of people spending $4,394 per year to own a car, and I already saved $3,500 per year simply by buying the right kind of car for my needs.
As I said above, my car was not aesthetically pleasing. Some people were actually embarrassed to ride in my car with me because it looked so old. But it ran perfectly.
If you are facing the choice of what car to buy, I highly recommend going with a vehicle that you can pay for in cash. It’s one of the quickest ways to help you put more money in your bank account.
If you’re not a big car person and want to know which brands tend to run best with lots of miles, start your search with Toyota or Honda. They are known to drive forever with minimal problems.
Never borrow money to buy a car (never buy a new car)
This may sound a bit harsh, but the logic is simple.
When you buy a car, its value will depreciate – especially if you buy a new car.
Why borrow money to buy an asset that immediately goes down in value?
And this isn’t just me talking – self-made millionaires agree that buying a brand new car is one of – if not the single worst financial decision you could make in your lifetime.
New cars look nice and have a lot of fun features, there is no denying that. But if your goal is to save money so you can travel around the world, you should never consider buying a brand new car.
But what about taking out a loan for a used car? This is a bit trickier and sounds pretty tempting, but the truth is you are still losing money by paying to borrow money for an asset that loses value annually.
My top recommendation is to buy a car that you can afford to pay for with cash. If you are in a place where you can only afford a $3,000 car, then get the $3,000 car.
It should last you for a couple of years at least.
I was in that exact same scenario with my car. I was broke, had student debt that I still needed to pay off, so I decided to buy cheap.
My cheap car lasted me 4 years. That’s less than $1,000 dollars a year compared to the national average of over $4,000 per year spent on car payments.
If you do the math, that means, on average, I saved about $12,000 over the course of 4 years by going with a car that I could actually afford.
If you buy a car without taking out a loan, you never have to worry about car financing, interest rates, or paying the bank money so that you can get a loan.
Borrowing money for a car should never be an option.
Sell Your Car – Buy a Cheaper One
Have two cars, but can get away with one?
One insanely easy way to save money fast is to sell one of your cars if you have multiple.
You’ll instantly cut down on car payments, insurance rates, and gas expenses – plus you’ll net a couple of thousand dollars by selling it.
If you need a second car, look into downgrading it. Decide what you need a car for and find one that makes sense.
I see a lot of people who own trucks or SUVs, but 99% of their driving is to and from the office or the grocery store.
In case you didn’t know, you don’t need a truck to go grocery shopping. A small, compact car will do the trick, and they are much cheaper.
Pay attention to how you use your car the majority of the time, and then purchase one that does the trick. Most of the time, you’ll be able to get away with a commuter car.
If you do need your second car, follow the same rules as above. Don’t buy new. Don’t take out a loan for it, and do your best to use only one of your cars as much as possible.
My wife and I had two cars for a long time. It made sense. We each had to commute to work, and our offices were in the opposite direction. But neither of us had a new car.
I drove my 2000 Honda and my wife drove her 2007 Mini Cooper. Both were economical. Neither of them were expensive. They got us to and from work. We carpooled together as much as possible.
Now we have one car. It’s economical, gets great gas mileage, and we only have to use it on occasion. We both work from home and have access to great public transportation, so it works out for us.
If you don’t have those benefits, I’d recommend downgrading and getting a commuter car. By doing that, you’ll start growing your bank account quickly.
Drive Less – Walk/Bike/Carpool More
Driving less is easier said than done. Cars are super convenient and many cities aren’t built out with great public transportation.
But the less you drive, the less you pay.
First, you’ll save on gas. If you can cut back on your driving and walk to the store or to work, your car will sit happily at your home. No gas used, no money spent.
One practical idea to cut down on your gas if you still need to use your car is to combine trips.
Instead of driving to the grocery store, coming home, and then later that day going back out to Target – see if you can combine that into one trip.
An easy way to do this is to write down a list of errands that you need to run. If they aren’t urgent, wait until you have enough items on your list to justify making a trip to the store.
By combining trips, you’ll cut down on the total distance you have to travel. When you pay per mile with your car, cutting back on some mileage is a welcome idea for your wallet.
I’m going to touch on carpooling here for a minute.
Carpooling can literally cut down your gas bill in half! Whether you are carpooling to work or going with your friends to dinner, or driving up to visit your parents with your siblings, carpooling is always a saver’s best friend.
Having to meet somebody at their house to carpool can be a bit inconvenient for your freedom to move or leave if you don’t want to be on someone else’s schedule.
But honestly, it’s not as bad as it sounds. It may add an extra 15 minutes of drive to your commute, or you may have to stay at the office a little longer than normal, but all in all, carpooling is an easy way to save money fast.
Remember your car is a means to an end
If you want to save money fast, you’re going to have to make smart financial decisions. Knowing which car to buy and how to use it properly is one of the fastest ways to cut back on your bills and add money to your savings.
If you know you are saving up to travel, then don’t lose out on money by purchasing a brand new vehicle. That will put you and your travels further out than almost any other decision.
But with these tips, you can now become a super saver as you plan out all the cool things you can do with that extra cash in your pocket.