Do you want to know how to save $500,000 on your car in a lifetime? Despite its expensive cost of ownership, a car is a necessary part of many people’s lives. The good news is that there are plenty of ways to save money on a car, and we’re here to help you find them!
The cost of a car goes beyond the initial purchase price or monthly lease payment. There are also ongoing costs like fuel, insurance, and maintenance to consider. This is why you need to be a smart car shopper.
If you’re looking to save money on your car, the best place to start is by evaluating your current situation and needs. From there, you can make changes to help reduce your costs. So, are you ready to buy a car in the smartest way possible? Let’s dive in!
How much does owning a car cost?
According to AAA, the average cost of owning a sedan is $9,282 per year. This includes the purchase price, fuel, insurance, maintenance, and repairs. If you own an SUV or truck, the costs go up to $11,676 per year.
The cost of ownership is one of the most important factors to consider when shopping for a car. After all, you don’t want to end up upside-down on your loan or lease payments!
Of course, these averages will vary depending on the make and model of your car as well as your driving habits. For example, if you drive a lot of miles or live in an area with high insurance rates, your costs will be higher.
Other costs include gas, oil changes, and tires. You should also factor in the cost of depreciation. This is the amount your car’s value decreases over time.
Assuming you keep your car for five years and drive 15,000 miles per year, the total cost of ownership would be $45,410 for a sedan and $58,380 for an SUV or truck.
Smart car shopping tips to save money on your car
Most car shoppers tend to focus too much on the price without considering other important things in the transaction. Some of these are car insurance, trade-ins, financing, and other others like extended warranties.
Similarly, other costs of ownership must be looked upon like fuel cost, depreciation, car maintenance, and repair. With that said, you can save a lot of money if you opt for reliable and fuel-efficient cars. In addition to this, pay attention to vehicles that hold their value very well.
Remember, car shopping is unlike any other shopping spree. The truth is, the majority of us are not used to negotiating prices. It’s an uncomfortable process. This is especially true in situations where customers are provided with different prices for a similar product.
As a result, we see a surprising pattern:
- about 5% end up getting good deals
- 15% are doing very well
- 60% of customers are struggling to get a deal
- 20% ended up getting ripped off
With this data, about only 20% of customers can save a good amount of cash. What’s more surprising is this pattern is relatively identical to the wealth distribution in the United States and many other areas.
So, do you want to belong to the top 5% of smart car owners? The road might not be as easy as you want it to be but if you want to learn, we can guarantee it will be worth every effort in the end.
In perspective, if you save $5,000 for every car purchase you make and buy a new one after five years with the same amount as savings, after 25 years, you’ll be able to save about $25,000 on savings alone.
Let me remind you, this doesn’t include and use that car for five years, But what will you do with your $5,000 savings? My advice is to invest your savings in an index fund like S&P 500.
Let’s dig in deeper. Assuming you’re 25 years old right now, and you invest the saved $5,000 in an index fund, for every car purchase you make every five years until age 65, you’ll be able to amass $500,000!
How is this possible? An S&P 500 index fund can grow your investment by an annual average rate of 9.53%. That’s a huge difference from leaving your savings in the bank which only has an annual average growth rate of 0.09%.
If you’re not familiar with index funds, they are simply a type of mutual fund that aims to match the returns of a specific market index like the S&P 500. They are often considered one of the best investments because they offer diversification, professional management, and low costs.
What if you’re not 25 years old? If you’re already 30 years old and still wanted to achieve the same goal of $500,000 by age 65, you need to invest about $10,000 for every car purchase.
If you want to achieve this milestone sooner than expected, you could do it by investing a larger sum of money for every car purchase. This is the rule of compounding interest at work.
On the other hand, the best way to save money on a car is to buy a used car. A used car is a great way to save money on your next vehicle purchase. Not only are used cars cheaper than new cars, but they also depreciate at a slower rate.
In addition, great deals on used cars are all over the place if you’re willing to find them. There are many websites and apps that can help you compare prices and find the best deals for your needs.
If you think about it more clearly, the cost of owning a car is one of the most expensive purchases you can make. While some people argue that it’s the house, they can be greatly mistaken. That’s because houses can appreciate over time while vehicles depreciate quickly.
Instead of putting all your money into the nice car of your dreams, consider a cheaper car and invest the difference in a mutual fund where it can grow and be used for future purposes. Be wise with your car purchases, and you could be well on your way to saving a large sum of money.
If you have any additional tips on how to save money when buying a car, please share them in the comments below!