🚗 How Cars Affect Wealth: The True Cost of Owning Wheels

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Welcome Back, Future Funder!

Owning a car isn’t just about getting from A to B—it’s a financial commitment that can significantly impact your wealth. Between depreciation, maintenance costs, and ever-changing gas prices, those shiny wheels might be quietly draining your wallet.

Here’s what we’re diving into today:

• The real costs of car ownership in the U.S.

• Depreciation dynamics: How it impacts your vehicle’s value—and how to minimize the hit.

• Purchase options: Comparing new, used, leasing, and more to find the best fit for your finances.

Bon a petit! 🧑‍🍳

💰 The Hidden Costs of Owning a Car

On the surface, buying a car seems simple: pay a price and drive away. But when you dig deeper, the costs add up fast. Let’s break it all down:

📉 Depreciation: Your Car’s Value Over Time

Depreciation is the single largest cost of car ownership, and it begins the moment you drive off the lot. Here’s how a typical depreciation curve unfolds for a new car:

The Depreciation Curve

• Year 1:

  • Most cars lose 20–30% of their value within the first year.

• Years 2–5:

  • Depreciation slows but stays steady, with cars losing about 15% annually.

  • By year 5, a car retains roughly 40–50% of its original value.

• Year 6 and Beyond:

  • The curve flattens further, though steep declines can occur depending on mileage, condition, and market demand.

Pro Tip:

• Consider purchasing a car after its 3-year lease return. These vehicles:

  • Have already absorbed the steepest depreciation.

  • Are still relatively new and often well-maintained, giving you the best balance of value and reliability.

Understanding depreciation can help you make smarter purchasing decisions and maximize your vehicle’s long-term value! 🚘

💸 The True Cost Breakdown

When purchasing a car, depreciation is only part of the story. Here’s a closer look at the additional costs that often fly under the radar:

1. Financing Costs

• With average auto loan interest rates at 6.84% for new cars and 12.01% for used cars, financing can significantly increase your overall expense.

• Borrowing to buy a car adds roughly $1,332 annually to the total cost.

2. Insurance

• Annual premiums average $1,715, but this amount varies based on:

  • Location

  • Driver's age and experience

  • Vehicle type

3. Maintenance and Repairs

• According to AAA, the average driver spends:

  • 10.13¢/mile, which equals about $1,520 annually.

  • Costs increase as the car ages.

4. Fuel Costs

• For U.S. drivers, fuel averages 14.90¢/mile, or nearly $4,000 annually for regular-grade gas.

• Electric vehicle (EV) owners incur costs based on 15.8¢/kWh for charging.

5. Registration and Taxes

• These fees average $815 annually, though electric and hybrid vehicles often face higher charges in some states.

🚗 New, Used, Lease, or Alternatives?

Each car ownership option comes with distinct financial trade-offs. Here’s how they compare:

1. New Cars

• Upsides:

  • Equipped with the latest features.

  • Comes with a full warranty for peace of mind.

  • High reliability.

• Downsides:

  • Rapid depreciation (losing value as soon as you drive it off the lot).

  • Higher upfront costs compared to other options.

2. Used Cars

• Upsides:

  • Lower purchase price than new cars.

  • Depreciation happens at a slower rate.

• Downsides:

  • May require more repairs as the car ages.

  • Limited or no warranty, depending on the vehicle.

3. Leasing

• Upsides:

  • Lower monthly payments compared to buying new.

  • Always driving a newer car without long-term ownership.

• Downsides:

  • You’re paying for use, not ownership.

  • Comes with mileage restrictions and potential fees for exceeding them.

4. Alternatives (Rideshare, Car Subscription Services, Rental)

• Upsides:

  • No maintenance or insurance costs.

  • Pay only when you need the car (calculated by time, distance, or demand).

  • Convenient for infrequent drivers.

• Downsides:

  • Not practical for frequent drivers.

  • Costs can add up over time, potentially exceeding car ownership.

What Experts Recommend

🔗 Resources to Plan Ahead

Planning ahead for car ownership? These tools can help you make informed decisions:

1. Value Your Vehicle

• Use resources like Kelley Blue Book (KBB) and Edmunds to estimate:

  • Trade-in value.

  • Private sale price.

  • Current market value.

2. Estimate Maintenance Costs

• Check RepairPal and other repair cost databases to anticipate potential expenses for:

  • Regular maintenance.

  • Common repairs based on your car’s make and model.

3. Fuel Cost Calculators

• Utilize AAA’s Gas Calculator to project annual fuel expenses.

  • Enter mileage and car type to get a realistic estimate tailored to your driving habits.

🌟 Key Takeaways: Cars and Wealth

1. Depreciation Is King

• Cars lose value rapidly, especially during the first few years.

• Avoid buying new unless it aligns with your specific financial goals.

2. Hidden Costs Add Up

• Insurance, maintenance, and fuel can quietly drain your wallet over time, often more than anticipated.

3. Buy Smart

• A gently used car (about 3 years old, often after a lease) strikes the best balance between cost savings and reliability.

4. Consider Alternatives

• Depending on your lifestyle, options like ridesharing or car subscription services could save money in the long run, especially for infrequent drivers.

Owning a car is often a necessity, but with smart choices, it doesn’t have to derail your wealth-building goals.

Cheers to getting 1% better each week! 🥂

P.S. – Have tips or tricks for cutting car-related expenses? Share your story, and we might include your advice in our next newsletter!

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