August 12, 2008

Buying a used efficient car can save typical Americans thousands a year.

Previously I discussed what a typical family spends in a given year. For transportation a typical family spends over $7000 annually on two cars. Car purchase was $3000, gasoline was $1,997 and other expenses were $2,146. In my mind this is way too much for a family to spend.

My last car was a 2 year old used 1995 economy model that I bought in 1997. I paid about $7,000 and drove that car for 10 years. I then sold it for about $1,000. The car got 29 MPG average and I drove it about 80,000 miles in those 10 years. I got the oil changed regularly around every 3k to 5k miles. I think I spent around $1000 to $1500 total in repairs other service. My insurance rates were around $600 a year give or take.

Purchase cost $7000
Sale return ($1000)
Gas costs 2758 gallons x $2.53 = $6,978
Oil changes 20 x $30 = $600
Repairs/service = $1500
Insurance = $6000
TOTAL = $15,078 for 10 years

My annual car cost = $1507

Typical American vehicle costs = $3,571

So compared to a typical American my vehicle cost $2,000 less per year.

Why was it cheaper? It was inexpensive, used, efficient and I drove it for 10 years before trading in.

Lets look at another example. Previously I discussed fuel efficient used cars. One of the cars from the Consumer Reports list is the 1998-2000 Toyota Corolla. According to Edmunds you can get a 2000 Corolla for $5600-5900 price range. If you bought one and then drove it for 5 years you should be able to sell it for around $2,000 or more. If you buy it for $5,900 then drive it 5 years and sell it for $2,000 your cost is $3,900 over 5 years or $780 per year. Compared to the typical expense of $1,500 annually per vehicle this is a $720 annual savings.

Since you are buying a fuel efficient car your gas expenses will go down too. The typical family spends about $2000 annually in gas (for the year 2006). I believe the average auto gets about 20 MPG. The Toyota Corolla averages 30 MPG. So with the Toyota the average gas use will be more like $1,333 a year. Thats a $667 annual savings in gasoline compared to average. Over two vehicles thats a $333 annual savings per vehicle. The 2000 Toyota Corolla is just one example of an economical used car.

Typical family expenses : Car + Gasoline = $5000

Two 2000 Toyota Corollas : 2x car + gasoline = $2,893

Between the cost of the car and the gasoline savings if a typical American family switched to two 2000 Corollas they'd save $2,107 each year.

Even if you don't have $5900 on hand right now you could finance the purchase of a $5900 car and your monthly payments would be $114 at 6% for 5 years. Even financing the purchase its still $432 less than what typical Americans spend annually on car purchase.

Saving $2,000 a year on a car makes a big difference. For a typical family making $42k annually this represents 4.7% of annual income.

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