When calculating your transportation budget for the month, be sure to include car payment if you have one, gasoline, vehicle insurance and maintenance costs along with any public transportation expenses. These expenses should stay within 20% of your primary income, though you might be able to keep it down to 10% if you do not have a car payment.
“New cars lose value the minute you drive them off the lot.” Have you heard this saying before? As true as this statement is, I believe used cars do the same. As consumers have gotten savvy to the savings available from choosing used vs. new, the car dealerships have done the same. Take a look at your local dealership lot and notice how many new cars are on their lot as compared to the number of used cars they are stocking. You can bet they aren’t giving valuable lot space and overhead expenses to a category that is not making them big money.
The “Cash for Clunkers” program of 2009 greatly reduced the supply of used cars, thereby driving up prices by increasing demand. The best way to save on the purchase of a vehicle is to plan ahead by paying yourself a car payment before you need a replacement and by waiting as long as it is economically feasible to get something new or “new to you.” Figure up the cost of ownership for any potential purchase by looking at purchase price plus any interest you will pay and divide it by the number of months you can expect this vehicle to last you. (Note: If you are buying used, the price will go down but the number of months it may last goes down also.) This will help to look at these purchases through a long-term lens.
Steve and Annette Economides offer some great tips on buying used cars as well as budgeting for maintenance and car replacements in their book, Americas’ Cheapest Family Gets You Right on the Money.
So you know your percentage, now what?
Under budget – Way to go! Save the difference in what you are currently spending and the percentage you would be comfortable with if buying a new car is in your future. This will speed along the process of getting to that down payment goal.
On budget – Congratulations! Be sure to fund that maintenance account to prepare for costly repairs.
Over budget – Get down to business. Consider all of your options to pay off your car loans and reduce insurance expenses and/or driving to lower fuel costs.
What are some ways your family has used to save money on transportation? Feel free to share below in this forum.