The #1 Wealth Killer Nobody Talks About…

First…

We need to understand that MOST households have the same major expenses, and that is housing, transportation, taxes, utilities and household costs which I would actually just lump in with housing, and then food. So if we can save on these big categories, it’s going to save us a lot of money.

Now can you guess what the #1 Wealth Killer is here? Hint, it’s the one that is going to vary the most from person to person and that is transportation. Cars are a HUGE wealth killer in America - especially because of how our society attributes status and prestige to having a nice ride.

I was having a conversation with my friend Nate about this exact topic last week - which is the inspiration for this video by the way, and we both acknowledged its something that people don’t really tlak about, people seem to give each other props when they get a new car, and its so prevalent that its sitting right under our noses of how much having a new or nice car is taking away from compounding our wealth.

Now in 2023, used car prices are up again, up 2.5% in January month over month, and 15.7% of people who financed a new car in Q4 2022 committed to a monthly payment of more than $1000, the highest its ever been.

The average cost to own and operate a car according to AAA in 2022 is $10,728 PER year. So let that sink in a little bit, that’s a lot of money.

So let’s outline some of these expenses and how we can save money in every single category.

Example 2018 Civic

I’ve pulled up this 2018 Honda Civic here

https://www.edmunds.com/honda/civic/2018/cost-to-own/

And you can see that the TRUE cost to own over 5 years is $43,993 - which is just shy of $8800 a year. Now I purposely chose this Honda Civic, it’s a pretty economic vehicle that isn’t crazy expensive, it’s also 5 years old. It’s not like a flashy BMW that so many people in their 20s covet and want.

https://www.edmunds.com/bmw/3-series/2022/cost-to-own/

We can see that it still is quite pricey to own this car. I mean, The average american salary is roughly $54k a year, so imagine owning a used car and thats cost is taking up 16% of your salary every year. It’s going to be really hard to build wealth and compound our savings if we’re continually living outside of our means when it comes to transportation. Now Im not saying a honda civic should mean that you’re living out of your means, but I do want to draw attention to the fact that it could be costing you more than you think.

Ok so lets breakdown the costs here, you can see that the biggest expense is Depreciation on this civic.

99% of cars will depreciate, or have a reduction in their value over time due to wear and tear.

Car Depreciation is one of the biggest reasons I think investing a ton of money in a new car is a bad idea - you are literally putting money in an asset that goes down over time, so your money is not growing in this case.

If you want to save money on this category, what you want to do is to try to avoid buying new cars. Famously, when you buy a new car and drive it off the lot, it becomes a “used” car and then immediately drops 10-15% in value.

If you look at car depreciation curves, different cars will have different curves, but the sweet spot to buy a car is somewhere in the 3-5 year used range. This is when most of the depreciation has been chipped off already but the car is still “new” enough so that its not exactly a problem car that you’re going to have to spend a lot in repairs and maintenance. If you want to save money when it comes to cars, I think it makes a lot of sense to buy a car that has around 30,000 miles that is 3 years used. You’ll get a great deal and save money on your total cost of ownership over the lifetime of the car.

The next category is taxes and fees, you’re really not going to get around this one - almost all cars do have taxes and fees. If you are family that has multiple cars, one way that you can reduce the expense on this one is to just reduce the number of cars you own. I know a couple of my family friends have more cars than they have people in their household - and so consider reducing your fleet. That could save you a bit of money here, especially in California where you have to pass regular smog checks and those little expenses can add up over time. But other than those savings, this is a fixed type of cost for your car.

Financing - when it comes to financing - these are in reference to interest payments that you make when you finance a car. So a lot of people that buy cars aren’t buying them in full cash, they often will put a certain amount of money down and then make monthly payments that are a combination of paying off the car and the interest on it as well. Interest fees are going to be really high these days because of overall interest rates climbing - for example on an average car your interest rate will be in the 6-6.5% region and thats with good credit. If you have bad credit you should not be considering a new car that is going to cost you a ton of money in interest fees.

The next big category here is Fuel - and this is what people dont always factor in with their car. Your car payment might be $500-600 a month, but then if you add in your fuel costs per month - thats another $200-250 if you’re driving 15000 miles a year. I mean the cost of fuel here for a honda civic which is a pretty fuel efficient car is $12807 over 5 years, or an extra $2561 per year.

There’s not much you can do here when it comes to saving on fuel, you can fill up from a Costco - and if you’re able to save $5-8 dollars per fill up every time you do that it can really help you save if you get your gas there every time. You could buy an electric car, but thats often times not feasible and buying a new Electric Vehicle is really expensive and not possible for all financial situations. I mean hopefully in 10-20 years most cars will be electric and we don’t need to depend as heavily on fossil fuels, but for the purpose of this video that is something that we can’t really consider here just yet.

Insurance for this Honda ivic is $6949 per 5 years or about $115 extra per month. A good tip that I got from my friend Nate was that every year he marks down on his calendar to call his insurance company and shop around for different rates.

The thing with insurance is that many places will provide similar if not the exact same coverage, and often times they know that the value of you as a customer is worth a lot to them over time. So what you can do once a year is, lets say you have AAA insurance, call State Farm and see what they’re offering for liability and collision insurance. Often times these companies will try to undercut each other and you can get a better deal and this is an easy way to save a lot of money.

This is something I personally do even with utility bills like my internet and cell phone plan. I call Comcast once a year and see if they’ll continue to honor the introductory offer for my internet and usually if you say that you’re considering other internet service providers, their retention department will give you the same intro offer for another year or two. I’ve literally been on the introductory plan for 4 years now… so uhh, if you’re awtching this and you’re from Comcast… I actually dont use comcast, but for everyone else - thats a good tip for your insurance costs. ;)

Alright now with Repairs and Maitnenance - these are hard costs to really reduce unless you know how to work on your own car.

With YouTube tutorials these days, you can do a lot of the basic maintaining of a car yourself if you’re willing to put in the time to learn about how cars work.

For example, changing your oil is actually not super difficult and by watching a 20 minute tutorial, for example from Chris Fix - https://youtu.be/O1hF25Cowv8, you could learn how to change your oil, and then every subsequent time you change your own oil you are literally saving $100, even $125 or $150 every time in labor costs.

If you think about how many times you’ll have to change your oil in your lifetime, these savings are gonna add up. So cars are supposed to get their oil changed every 3000 miles, and if you drive 15000 miles a year - that’s 5 oil changes every year right?

So imagine you’re 30 right now and you drive till the age of 75 - that’s 45 years, or 225 oil changes that you’re going to complete in your lifetime.

Let’s just say miss a few here and there, that’s 200 for simplicity sake. 200 oil changes times a cost of $100 per oil change is $20000 - you could save a lot of money in your lifetime from just a 20 minute video.

Another thing you can do to save money is that when you see a check engine light on, you can take your car to a place like the Auto Zone, they usually will run a free diagnostic for you with a OBD2 scanner - which tells you what’s wrong with your car - so that you are not running to the dealership everytime your check engine light comes on. Even better if you buy the scanner and can do it yourself.

Here’s a personal story, my mom, bless her heart is in her 70s and her car had her check engine light come on. She could not figure out what it was and when she took it to the dealership it turned out that her gas cap just wasn’t screwed on properly.

Not only did she waste her time by going to the dealership, she was also afraid to drive on it for a week before her appointment. So sometimes these check engine lights are for really benign problems - and if you’re able to diagnose it it can save you money if the problem is easy to fix with a youTube tutorial, and time.

Conclusion

If you can go without a car, I think that’s the ultimate best situation.

So in that case, imagine you were saving $10000 a year in car costs because you didn’t have to drive, and you were putting that money into the stock market or investing in yourself. What if you took $10000 in 2018 and put it into Microsoft stock? It’s almost tripled since then and so your investment would be worth close to $30000. That’s just one example but there are so many examples out there of how the opportunity cost of owning a car could be costing you a LOT more than just the cost of ownership.

Another thing you can consider doing is living closer to where you work. You’re going to have to do the work on this but if you had the option to live walking distance to work but you had to pay $200 more in rent per month, that might actually be worth it since you don’t have to put miles on your car, and save in fuel costs with your daily commute. You probably know someone that has had a crazy commute where they’re driving 30-45, or even an hour each way just to get to work. These costs also add up - so consider living close to work.

So with car prices still going up, the pressure to keep up with the Joneses, try to not succumb to owning a car you cant afford.

So to recap, #1 if you are buying a car, consider buying it in the sweet spot of the depreciation curve #2 shop around for insurance, #3 try reducing your fleet if you have multiple cars, #4 try consider living close to work!