National obsession with cars
It’s not just celebrities and professional athletes splurging on automobiles. The average American family owns more cars, spends more on them and drives further than their counterparts in the rest of the developed world.
There were 860 cars in America for every 1,000 people in 2020, compared to 707 in Canada and 627 in Germany, according to data from International Organization of Motor Vehicle Manufacturers.
The average American driver commutes 41 miles a day compared to just 18 miles in the European Union, according to the Alliance for Innovation and Infrastructure. Meanwhile, the majority of households (59.1%) had at least two cars in 2022, according to the U.S. Census Bureau’s 5-Year American Community Survey.
By most measures, this is an expensive obsession to maintain. The average auto loan amount for a new car in the second quarter of 2024 was $40,927, according to Experian. Average interest rate was 6.84% during that period and monthly payments were an average of $734.
Simply put, most families can save a lot of money by simply picking cheaper cars, using public transport more or sharing cars with their partners. Although your commute might be longer or less comfortable, your path to financial freedom might be slightly easier.
That was Dr.J’s recommendation to Barkley as well. “He says, ‘Son, don’t waste your money on cars. Everyone knows who you are,’” he recounted. “‘You pull up in a Kia, they know that’s Charles Barkley…That $300,000 you spent on that Bentley, if you bought a car for $70,000 or $80,000, you would’ve had $200,000 more in the bank and it would have been growing and growing.’”
Here’s how you too can divert some of your car expenses to savings.
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Learn MoreLower auto costs
Downgrading and trading in your car for something cheaper is usually the quickest way to lower your auto costs. Ideally, buying a used car for less than market price in cash allows you to avoid the auto loan and associated expenses.
However, if these options are unpalatable there are other ways to lower your vehicle expenses. Consider switching to an electric vehicle for the tax benefits and fuel savings. The average American driver can save roughly $1,100 a year in expenses by switching to an EV, according to nonprofit Coltura.
Keeping an eye on auto loan rates and refinancing when the rate drops could be another way to save money. The average finance rate on a new auto loan dropped from 6.98% in December 2023 to 6.11% in September 2024, according to the Federal Reserve.
You could also target the auto insurance for savings. Try to negotiate a better rate, switch to a pay-per-mile policy, or take a defensive driving course to lower your premiums.
A combination of these steps should lower the financial burden of your vehicles and leave you more room to save and invest for the future.
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