How Much Does Your Car Really Cost You?

Those of us that are old enough to remember Mr. Ed might recall that horses use to be the primary means of transportation. Okay, so maybe I’m not that old. But I do remember watching all those westerns. So what do horses have to do with cars? Not much except somewhere along the way, maybe it was when “horse power” was sexy, cars went from being a means of transportation, to a means of ego gratification. For those of you who are car fanatics, like most of my family are here in Michigan, I’ll tread lightly.

I heard once that the average Joe spends 18% of his entire life’s earning on cars. Between oil, gas, maintenance and repairs, insurance, the actual car’s cost, and interest on the loan used to purchase the car, we’re talking big bucks. If the average Joe makes $62,500 and lives to age 78, that means that from age 16 to 78, Joe is going to spend $697,500 on cars over the course of his lifetime. So how does Joe prevent this net worth black hole from happening?

It has nothing to do with antimatter Dr. Hawking, and something to do with anti-materialism and/or anti-consumerism. This re-appearing money trick requires making cars a means of transportation again, and not ego gratification.

What are some of the things we can do?

  1. Buy, don’t lease. Leasing is like renting. A friend of mine from high school is always sporting a new Jeep every 2 or 3 years. Twenty years later and he’s still got a payment of a couple hundred dollars a month. Conversely I know another person not unlike myself that hasn’t had a car payment for over 5 years now. This frees up cash flow and makes it much easier to save money, not unlike the $500 a month I am currently saving. This leads me to point #2:
  2. Pay cash, don’t borrow. Most of the millionaire next door types that I run into have no debt. They pay cash for everything. Well they pay credit, collect points, travel extensively, and pay the bill when they return. When the time comes, I’ll pay cash for my next car, unless of course I get 0% financing.
  3. Keep your car for as long as the wheels turn. In 1997 Bob Sikorsky said that a family car can last 1.5 million miles, or a lifetime, if maintained properly. The other day my dad said his Buick went haywire. The lights started flashing and he had to pull over. Turns out he turned 250,000 miles.

Follow these three golden rules and what car you buy shouldn’t matter too much. But if you want to be a real type “A” person about it, there are a couple other things you can do:

  1. Perform a cost comparison. Research the real cost to own one car versus another, and compare the life-cycles costs. Pick the car that has good fuel efficiency and low insurance rates. My dad actually chose his car based on how much it was going to cost to insure it.
  2. Buy gently used. Because depreciation can accounts for 46% of the cost of a car, buy your car used with up to 35,000 miles on it.
  3. Negotiate! Not everyone is as savvy as you are about buying cars. They have to have the next best thing and are willing to dump theirs at major losses to get out of their payments.

As a parting thought, do you know what the number one car driven by millionaires is, according to Dr. Thomas Stanley in The Millionaire Next Door? The Ford F150! Not a Cadillac, that was second. Not a Mercedes like I saw so many of in Italy. Not a BMW, nor a Audi. The number one car driven by millionaires was the Ford F150.

The most successful millionaires’ next door that I’ve ran into in my 12 year career as a financial planner have one thing in common with their vehicles. They are paid for.

About the author

Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.

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