How Cars Cost Us
Transportation is a big part of the average American family's budget. The costs of purchasing, fueling, insuring, maintaining, and repairing vehicles are the second-largest expenditure on average, right behind housing (see Table 7.1).
| Category | Amount Spent | Percent of Total Spending | Percent of Pretax Income |
|---|---|---|---|
| Housing | $13,432 | 33% | 26% |
| Transportation | $7,781 | 19% | 15% |
| Food | $5,340 | 13% | 10% |
| Other | $4,094 | 10% | 8% |
| Insurance and pensions | $4,055 | 10% | 8% |
| Health care | $2,416 | 6% | 5% |
| Entertainment | $2,060 | 5% | 4% |
| Apparel and services | $1,640 | 4% | 3% |
| Totals | $40,818 | 100% | 79% |
| Source: Bureau of Labor Statistics, 2003 | |||
The biggest chunk of our transportation costs (more than 70% of the total, on average) is the money we shell out to actually buy or lease the car. Unfortunately, many Americans are going about these purchases all wrong:
They're driving into dealerships to buy new cars when they still owe money on their old ones. A stunning 40% of new-car buyers still have loans on their trade-ins, according to Edmunds.com; the average amount of negative equity is $2,220.
They're stretching too far to buy the cars they want; 84% of all new-car loans are now for terms in excess of four years. With such long loan terms, it can take years for the driver to hit the break-even point, where he or she finally owes less on the car than it's worth.
Gluts of used cars and incentives on new cars can make the problem worse by pushing down the value of older cars. That means as soon as you drive off the lot, your new car's value takes a big tumble—which can make it harder than ever to reach that break-even point.