Have you thought of ditching your old car? It could be the easiest way to shore up your finances by allowing you to reduce thousands of dollars in annual expenses. Of course, most people own cars because they need them, but is that still true for you? The pandemic has killed the commute for many of us, and you might be one of them—with a depreciating asset sitting on the driveway.
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Cars are expensive
Transportation is a typical household’s second-largest expense after housing. When you include fuel prices, repairs, insurance rates, license/registration, taxes, depreciation, and finance charges, the average annual cost that people spend on their car is $9,282, according to AAA.
Of course, if you own an old clunker you likely spend much less. You’re also paying less insurance because of depreciation, but that just means your car is losing value—up to 60% by the end of the fifth year, according to Black Book. And maintenance costs also go up as the car gets older. A Consumer Reports survey revealed that, on average, a 10-year-old car costs $375 more annually in repairs than a three-year old car.
Car costs vary by car, and a cost-of-ownership calculator can help you determine how much you’re spending. As a rule of thumb, you should be paying no more than 15 to 18% of your income on a used car, especially if you don’t use it.
You might have alternatives
Not everyone can ditch their car, but if you live in an urban area with good public transportation and ride-sharing options, you’ll want to do the math and see if it works for you. Knowing how much you spend on your car, including gas and parking, should give you baseline that you can compare against with these other options:
- Public transportation
- Walking or cycling
- Taxis, car-sharing, and ride sharing services
- Peer-to-peer car rentals
- Rides from a family member or friend
If you look at a public transportation pass that costs around $150, that’s only $1800 a year—how does that compare to what you’re spending on your car now?
Just don’t forget to be realistic about your needs—once in a while you may need to do some heavy shopping, move furniture, or drop your kids off for school. You’ll want to set aside some money for taxis, ride-sharing, or rentals even if you intend to only use public transportation. Also, you might want to put a dollar number on your time and factor in the opportunity cost of doing something else other than driving, like reading or working during your commute.
If you choose to sell your car
The good news is that used car sales are booming. NerdWallet has a solid guide on selling your old car, but the main online players are Carvana, Shift and Vroom. These sites let you self-appraise and will pick up your car if you agree to sell it.