Americans have a strangely peculiar and downright expensive relationship expensive cars. If you see someone pulling out of their 3000-sqft house in their brand new Chevy Tahoe or F-150 Raptor, I’m talking about those people. But it does not stop there. So many Americans are trapped into the status symbol of big homes and nice cars, and it’s literally ruining their future.
According to a study by the American Institute for Economic Research, Americans will spend between $250,000 and $350,000 during their “driving lifetime” on cars. That is more than a quarter million dollars on nothing but an engine to get you from point A to point B.
All I can say is…WOW!
Instead of buying a Honda Accord or Ford Fiesta to drive to Point B, many Americans instead will spend thousands more on a BMW, or a gas-guzzling pickup truck, to bring them to Point B. Both vehicles do precisely the same thing. One costs much more.
“The BMW drives better”, you might say? I might reply with “So what?”. Ask yourself a question. Is driving around in an expensive car worth YEARS of additional work and responsibility? Maybe so. If you want to retire before you are 60, then take the opportunity to drive around in a vehicle that might not shift as smoothly as a Bimmer. Then, take the extra dough that otherwise would have been spent on a “nicer” car and invest it.
How would you feel about driving around in a cheap car, but literally taking years off of your working life?
Americans also love new things, and switching out cars every few years is a habit that keeps too many Americans in a perpetual state of “money out” for these damn automobiles. Keep a vehicle for more than 5 years and cost of ownership decreases, especially as car loans are paid off.
And speaking of loans, always buy instead of lease. While monthly lease payments may be lower than loan payments, drivers wind up spending less and getting more for their money when buying new or used cars – as an Edmunds.com report proved. Maintenance is less for leased cars, but insurance is generally higher. Also, once your loan is paid off for your car, you’re all done with monthly car payments. Rejoice!
What is the benefit of leasing? Leasing enables behavior that sinks more and more Americans into debt every year – leasing allows more car for less money. The problem is Americans almost never NEED that much car, and lease payments never end. Like the Edmunds report cited, leasing cars winds up more expensive than buying a more reasonable car, even if the immediate cost of buying a car is higher.
The best way to limit wasteful spending on your automobiles is to buy a reasonable used car. Additionally, cars that are reliable and fuel efficient cost significantly less over time. Properly maintained cars save Americans hundreds of dollars every year in “car trouble”.
In other words, don’t let your perceived status get in the way of saving some cash for retirement. When invested, cash builds. When spent, cash does nothing. Be reasonable with your car expenses. Trust me, your future self will thank you for it.
Steve is a 37-year-old early retiree who writes about the intersection of happiness and financial independence. Steve is a regular contributor to MarketWatch, CNBC, and The Ladders. He lives full-time in his 30′ Airstream Classic and travels the country with his wife Courtney and two rescued dogs.