Owning a car has become a right of passage in America. Sadly, having a car payment has also now become the norm. Since this website is all about efficient finance and frugal lifestyle, we’re going to cover tips for reducing your transportation costs so that you can save for more important things.
Watch this video or read the full article below.
First, we’ll cover guidelines if you must buy a car. Then, we’ll cover alternatives to car ownership.
Buying A Car
Don’t buy new. Automobiles are depreciating assets. When you buy a new car, it depreciates significantly the minute you drive it off the lot. At least with a used car someone else has take the first depreciation hit.
Pay cash. Save your money and pay cash. This will save you on interest.
If you must finance… Your down payment should be a minimum of 20% of the car loan. Finance for no longer than 3 years. Don’t finance for 4 years and promise yourself you’ll pay it off early–it never works out that way.
Don’t pay too much. The total cost of your car and the insurance, should be no more than 10% of your annual net income (that’s after taxes).
Alternatives to Car Ownership
Now days most people own a car out of habit. It has become the American way. However, it doesn’t have to be. There are many options to help you avoid this expense.
Public Transportation. Just about every city has some form of public transportation, some obviously better than others. Where I live just outside of Washington DC, there is absolutely no need for a car. In fact, many employers here even provide a stipend to encourage the use of public transportation.
Ridesharing. This method of transportation has been around for years. Many years ago, carpooling became a popular way to take turns on the drive in to the office. Now days, you don’t need a car yourself to join a ride sharing program. Car owners want you to join them so they can take advantage of HOV lanes.
Pedal Power. If you live close enough to work, why not get a little exercise on the daily commute? You can get a bike for a lot less than a car! This approach can save your wallet and your waist line.
Uber/Lyft/Taxis. Paid driving services such as Uber and Lyft are a simple choice for times you need to get across town in a hurry. Just be aware that they can be very costly if used on a regular basis.
Rental/Zipcars. Renting a car can be an affordable way to take an out-of-town road trip. While the fees can add up if you’re not careful, there are a lot of options on the market if you shop around. In addition, there are car sharing alternatives like Zipcar that provide on-demand access to cars by the hour or the day in cities, airports, and campuses around the globe.
No matter what option you choose, first be sure that it fits within your budget and is in line with your financial goals. Click here to get started!