Americans have always had a love affair with cars. But are they messing up our finances? Are you paying too much for your car (or even for multiple cars)?
Here are some stats for perspective:
- 1 percent of total petroleum consumption is by people in the United States
- In 1960, Americans owned more than 61 million passenger cars—about one car for every three people. In 2008, Americans owned 137 million passenger cars—a little less than one car for every two people
- The average new car cost in 2017 was $31,400 after incentives
Experian Automotive 2017 reports show:
- 86% of new cars were bought with the help of financing, higher than in previous years
- The average car loan was $30,000, the highest since Experian began tracking the data
- The average length for a new-car loan was 68 months—or five and a half years—and some loans are for as long as seven years.
- Auto leases are becoming more popular, accounting for more than 30% of new-car transactions in the first quarter
The annual cost to own and operate a vehicle in the United States in 2016 was $8,558 according to AAA’s 2016 Your Driving Costs study. Here’s how that breaks down:
|License, Registration, Taxes||$687|
In 2015, Americans spent $1,184 billion on transportation, or 9.6% of all personal consumption expenditures per household.
Bankrate provides a tool to encourage better car buying habits. Remember the 20/4/10 rule:
- Aim to put down at least 20% of the car’s price in cash
- Take a loan for no more than four years
- Keep the cost of transportation to no more than 10% of after tax household income.
Care for an example or two to see this in action?
- Assuming an annual income of $75,000 and income taxes of $11,925 (15.9%), you should spend no more than $6,307 (or 10%) per year on a car.
- Assuming an annual income of $150,000 and income taxes of $28,200 (18.8%), you should spend no more than $12,180 (or 10%) per year on a car.
*Find a table to figure out your tax bracket here.*
Add up your auto loan, car insurance, monthly gas expense and any other auto related expenses. How are you doing? Is your auto expense 10% of your after-tax income? More? Less?