Owning and operating a private new car is costing the average American $3.5 million.
What a headline.
Can I back it up?
First, I want to quickly note that nothing exists in a vacuum.
While the math on averages will prove out the headline, not everyone is spending the same amount of money on a car. Some spend less. And some spend more.
Furthermore, there are some situations where private car ownership is a necessity. Of course, I would argue that these situations are often present due to poor planning on the part of oneself, but that’s another discussion for another time.
In addition, the ownership or non-ownership of a car could cause some changes in other aspects of one’s lifestyle and spending.
If, for example, forgoing a car causes a rise in how much one spends on rent (so that they can live in a walkable urban environment with good public transit), the overall savings of not owning a car might not be as high as I’m stating here. (On the flip side, urban areas tend to have higher-paying jobs.)
Also, there’s the possibility that ownership of a car results in extra income opportunities of some kind (like access to a particular job that’s located away from public transit).
No matter how you slice it, however, it’s insane. The amount of money the average American is lighting on fire so that they can own and operate their own car is unreal. Instead of setting up a lifestyle to thrive without a car, they cram a car into a lifestyle without much premeditated thought.
But I’m not biased. Unless you were to say I’m biased toward common sense.
I simply recognized how financially crazy it was for me to own a car. I admitted that I was making a poor choice. Then I corrected my prior irrationality by getting rid of my car.
I’d go so far as to say that becoming car-free (but not carless) is one of the best financial decisions I’ve ever made.
It’s greatly aided me as I’ve gone about building my FIRE Fund, which is my real-money early retirement dividend growth stock portfolio that affords me financial independence.
My decision to give up the car continues to pay dividends, literally and figuratively.
Being car-free is one of the biggest and best life hacks out there.
It can’t be overstated.
After all, we’re talking about $3.5 million here.
Average Annual Costs Of Car Ownership
So let’s break this down with old-fashioned math. There’s no hyperbole needed to make the point.
In order to figure out exactly what a car is truly costing you, we first need to figure out how much money the average American spends per year to own and operate a car.
Again, this is just an average. You may spend less. You may very well spend more.
But I think it’s a pretty good baseline to work with. I worked in the auto industry for years. My career was spent in car dealerships, which gave me a lot of firsthand experience regarding the costs of car ownership. And I’d say almost every customer I ever came into contact with was actually spending more than this.
Per AAA, the average annual cost of new car ownership for an American is $8,849 per year.
That’s $737 per month.
That’s the conclusion of a study that examined the 45 top-selling 2018 model-year vehicles. And that number is using the average of all types of vehicles.
Keep in mind, that’s just one average car per average American. If you own two cars in your household, you could easily eclipse this at the household level. Or maybe you’re doing great on the individual level, but two cars easily add up to, or exceed, this number in total.
Honestly, I don’t think it’s difficult to get to ~$740 per month. After adding up depreciation, interest, maintenance, gas, insurance, taxes, and fees, it’s not a terribly high hurdle.
Of course, the biggest expense of all is the one that’s missing from this conversation.
This is the cost that really bites you.
Using Public Transportation Instead
We know what the average American is spending to own and operate an average new car.
I’m now going to use that information to illustrate how much this is truly costing them.
Let’s assume this average American forgoes ownership of a new car – or any car at all.
They instead are allotted $137/month for a combination of public transportation and ride-sharing services.
This is more than doable in most markets.
I don’t think I’ve ever spent this much in one month, even in all of my years of riding public transportation and using ride-sharing services.
For example, an unlimited monthly pass on Chicago’s CTA system only costs $105.
That’s unlimited rides on a world-class public transit system. And you’d even have a few bucks in there for the occasional late-night Uber ride, if you were so inclined.
I was car-free for years in tiny Sarasota, Florida. It would have been even easier in a place like Chicago. If it’s possible in a small Florida city, it’s likely very possible where you live.
Besides, if you structure your life correctly, you could simply walk to most places (including your job). Personally, I love walking. It’s my favorite form of transportation. The fact that it’s so cheap, healthy, and good for the environment only adds to my enjoyment.
Bicycling, of course, is another low-cost and awesome transportation method.
How Car Ownership Costs You $3.5 Million
If we assume you don’t have a car and instead spend $137/month on a combination of public transportation and ride-sharing services, you’re left with $600 per month.
That’s $600 per month to save and invest.
I’m now going to assume that this average American realizes the folly of prior generations and decides to forgo car ownership right out of college. This would, obviously, be a very un-average realization to have, but I’m showing you what the lifetime costs of car ownership could be costing you. After all, it’s not uncommon for a guy or gal to run off and buy a sweet new ride after they land their first real job out of college. I personally worked with many of them during the course of my career.
Let’s say you invest that $600 per month, starting at the the age of 22 (fresh out of college). And you invest that same amount, with never an increase, until your 62nd birthday, upon which time you decide to retire.
That’s 40 years of investing only the savings from forgoing private new car ownership.
You’d be free to spend the rest of whatever excess cash flow you’d be able to produce. Indeed, this person would have a lot more money for travel, restaurants, and any number of activities simply because they weren’t spending so much money on car ownership.
Investing that $600 per month over 40 years, getting a 10% rate of return on your investments (the average rate of return of the US stock market over the long run), nets an end result of $3.5 million.
That new car might look shiny.
But $3.5 million and the freedom it buys strikes me as a lot shinier.
Running calculations like this can be eye-opening.
You might not think that trotting down to the dealership and loading up on a $400/month car payment is all that life changing. But it can completely alter your path in life.
Opportunity cost might not show up on a sticker. But it’s there, nonetheless.
You could quite literally be losing out on millions of dollars by deciding to own and operate a private car.
I want to note once more, this is simply looking at things from the financial angle.
In my view, avoiding the stress of car ownership, and simultaneously gaining the health benefits of walking more, are bigger and better reasons to forgo owning and operating a private car. I partly attribute my own good health to the lack of car ownership. The majority of Americans drive cars. And the majority of Americans are also overweight or obese.
But throwing $3.5 million at someone gets their attention more than talking up good health does. So there you go.
You’re certainly free to adjust the numbers for your own situation to find out how much a car is truly costing you over the course of your lifetime. In fact, I encourage you to do so. You might be surprised.
What do you think? Surprised to find out how much average car ownership can actually cost? How much is your car costing you?
Thanks for reading.
P.S. If you’re ready to put your capital to work and achieve financial independence, check out some fantastic tools and services I used on my way to becoming financially free at 33!