I’ll admit now that I love cars, they are the magical culmination of art and engineering. They are as much living creatures of beauty that reflect the character of the owner as they are machines that transport us from A to B…
…Now coming back down to Earth, they are also a massive drain on your wallet and often a major impediment to reaching financial independence quickly.
The problem with cars is that they have large upfront costs and lots of little hidden costs that make owning a car seem more cost effective than renting or taking a taxi or using a rideshare service. Among these hidden or some would say not so hidden costs are: insurance, registration, parking, repairs, tyres, fuel, car washing, parking fees and granddaddy of them all depreciation. So here are my top tips for reducing transport related are expenses:
Become a single car household
We’ve been a single car household for years, yes it requires a bit more planning but we find that the occasions were we have to go to different places and can’t organise a drop off/pick up arrangement to be very rare – maybe only a few times a year. And when that happens one of us just gets and Uber. Even if you end up spending $2000 a year on ride share services this is still much cheaper than the average fuel cost alone.
Buy a second hand hatchback
Like houses people tend to buy too much car for their needs – I’m looking at you SUV owners! The problem is that 95% of the time the owners don’t use the 4WD functionality or the boot space. Not only do these cars cost a fortune to buy, they also cost a fortune to maintain with their special tyres, lack of fuel efficiency and additional maintenance costs. If you find that you really need the functionality of an SUV or the gear hauling capacity of a van just hire one for the day or the week.
Also the depreciation cost of a car is significant, by buying a second hand vehicle you will have someone else take the hit for the depreciation so you’ll need to save much less to be able to afford your vehicle.
Keep the car for as long as possible
Cars lose around half their value every 4-5 years, in my opinion, that’s a bad investment. By constantly changing vehicles you are crystallizing a loss that has a negative impact on your cash flow now, personally I’m a fan of holding on a vehicle until its repair costs become unpalatable and investing the money now that I would have otherwise realised as a loss from selling the vehicle.
Pay cash for your vehicle
There are occasions where novated leasing can work out better (I’ll talk about this in a future post) however in the vast majority of cases, they are exactly like mortgages – they encourage the purchase of more vehicle than someone can afford. As a result the repayments end up being a drag on money that could otherwise be invested. The other issue with this is that a car is guaranteed to depreciate (unless it’s a vintage collectable) so there’s no option of selling it in the future to recover the loan cost, so you’ll inevitably have to pay a higher total cost over the loan term. Saving up for a car may seem like short term pain, but it’s easier to have the bank pay you a small amount of interest and work with you than charge you interest and work against you.
Summary
So in summary making these changes to your car ownership situation will potentially save you tens of thousands of dollars. However your ego will take a hit, and even as a car lover, I believe it’s totally worth it. While the sound 8 cylinders of German under-the-hood muscle is music to my ears or the way a well-engineered sports car grips and grips and grips when powering around a freeway on-ramp, they do not even begin to compare to the sweet sense of freedom produced by that same amount of money invested in the market.
Engineer your freedom