The overwhelming majority of U.S. households (95%) own a vehicle, and for 85% of Americans, it's how they get to work. But not all cars are created equal, and if you choose the wrong one, you could wind up hemorrhaging an unhealthy amount of cash each year for no good reason.
The cost of owning a car
It now costs $8,849 a year, on average, to own a vehicle, according to AAA. That's about $24 per day for those keeping score. And while that might seem like a reasonable price to pay for the freedom of being able to go where you want when you want, it's also an expense you have the ability to lower.
Now let's talk about expenses for a minute, because when you own a vehicle, you'll encounter lots of them. Fuel costs aside, there's your car payment, insurance, maintenance, and repairs when things inevitably take a turn for the worse. And in case you're wondering, the average auto repair bill generally lands somewhere in the $500-to-$600 range -- an expense 33% of vehicle owners can't pay without racking up debt.
But perhaps the greatest cost of owning a vehicle comes in the form of depreciation. In fact, depreciation will cost you more than $3,000 per year, according to AAA, thereby accounting for nearly 40% of the costs associated with owning your car to begin with.
Of course, it's easy to argue that owning a car is a necessity and also a means to earning a paycheck. But there are ways to go about it without losing (as much) money needlessly year after year.
Keeping your vehicle costs manageable
The specific vehicle you purchase will largely dictate how much you spend to own it, so choose wisely. Small sedans cost an average of $6,777 per year to own and operate, so if you don't need a larger car, going that route could save you nearly $2,100 annually when we compare that figure to the $8,849 above. Furthermore, while there's something to be said for driving a pickup truck and having the ability to cart whatever you need all over town, owning one costs an average of $10,215 a year. Opting for a small sedan instead, therefore, could translate into a $3,438 difference.
What sort of impact might that have on your finances? For one thing, if you're currently living paycheck to paycheck, freeing up that sort of cash will buy you some breathing room in the face of unplanned expenses, thereby lowering your likelihood of digging further into debt.
An extra $3,400 a year could also work wonders for your retirement. If you were to save and invest that money in an IRA at an average annual 7% return, over a 30-year period, you'd wind up with $321,000 to your name. Not too shabby.
Of course, if you can't bear the thought of squeezing into a small sedan on a regular basis (or if your family is larger, your kids need bulky car seats, and that setup just won't work), consider buying a certified used vehicle instead of a new one. Cars lose the greatest amount of their resale value within their first year, so buying even a relatively new used vehicle could lower your costs considerably.
Finally, be sure to keep up with regular maintenance on your vehicle. Letting minor problems escalate is an easy way to turn an otherwise manageable expense into a whopping one, and that's a good way to wreck your finances for no good reason.