America is a two car nation. According to the US Department of Transportation nine years ago there were over 250 million cars in the U.S.A. According to the US Census Bureau there were about 109 million households in the country. That puts the per-household number of cars at 2.3.
While the recession slowed car sales down, they’ve been rising ever since. Which means the two car household ideal is still the norm in the United States. But that extra car will cost a household a million dollars over the average person’s working life.
The True Cost of Owning a Car
Most people don’t realize how much owning a car truly costs. The U.S. Department of Labor, Bureau of Labor Statistics estimates that transportation is the second largest portion of an American’s budget, eating up 17.5% of people’s expenditures.
As an average, consumers are likely spending almost $8,500 a year. USA Today estimates that to be almost $9,000. Outside of housing, it’s the biggest chunk of the budget. Bigger than healthcare, savings for retirement or food.
Many advice columns on saving advise people to skip an extra cup of coffee a day or to bag lunch. This advice depends on people constantly making small choices every day to save small bits of money from the smaller piece of the pie from the graphic above. But it makes a lot more sense to target the larger parts. And car costs are one of the larger parts.
Car costs are scattered around throughout the year, which often hides their true costs. A driver usually primarily pays attention to their car payment. This is a consistent, month-to-month payment that they cite when asked about the cost of car transportation. But there is also gas. Slightly more savvy car owners pay attention to the price at the pump, and Americans are never more outraged than when the price of gas suddenly spikes. That’s because the cost of driving a car is suddenly made more instant and real.
But there is also car insurance. Again, separate from the other two, owners often forget to add this in to the cost of operation. Then there is maintenance. Again, this is factored in when a car breaks down, but most people aren’t thinking about it during their daily commute. However, even routine maintenance adds up to hundreds a year.
It’s only when someone sits down and looks at the cost of insurance, payment, gas and maintenance over the course of a year that the costs become clear. While a second car may be paid off, it still costs to insure, to drive and to maintain. Money that could instead by invested toward a more comfortable future.
Money Invested in a Car Could Make You a Millionaire
Cut the average American cost of owning cars in half by ditching a second car and invest that money into the S&P 500, which has returned 11% over the last sixty years, and that second car’s money would be worth over a million dollars (five thousand a year invested in the stock market over twenty to thirty years adds up quickly). Quite simply, ditching a second car could make one a millionaire.
If the stock market feels to risky, investing in bonds instead of a second car would leave an investor with $300,000 to $400,000. When the average American barely has tens of thousands saved for retirement, the simple hack of redirecting the money from a second car into a retirement account could put someone far ahead of the rest of the pack.
And that person wouldn’t even have to give up fancy coffee.
Passenger vehicles in the United States – Wikipedia
Total Number of U.S. Households – Statisticsbrain/US Census Bureau
The Cost of Owning Your Car – USA Today
Rising car sales are impacting the supply chain – Motor Trader