How to save money on your car

Cars are a huge cost. Between buying, registering, insuring, driving, maintaining and all the taxes like stamp duty and tollways that are associated with car ownership, the list of expenses seem to go on forever. Here are some ways you can save thousands on your car costs, potentially adding up into the hundreds of thousands of dollars over your working life.

The number one tip sounds kind of silly, and its not possible for everyone – just don’t have a car. Cars are expensive depreciating liabilities, which cost a lot more than people realise. Not having a car might make sense if you are in a big family and can carpool, or if you live in a big city or very close to work. But the reality for most of us though, is we need a car.

The psychology behind having a car (even if we don’t actually need it day to day) is important to some as it provides a level of flexibility and freedom, as well as security. I mean, what if you had a family emergency and needed to take a family member to the hospital quickly?

Although most of us are resigned to needing a car for our daily commute or the above reasons, there are still a heap of simple tricks you can use cut down on these costs. Check them out below!

Drive the cheapest car your ego will let you

My Dad didn’t really teach me much, but one of the best bits of advice he ever gave me was “drive the cheapest car your ego will let you”. I think its good advice, and it makes sense that driving your old stationwagon is going to be a lot better value motoring than a big 4WD or a sports-car.

All you need to do is take one look at a shopping centre car park, and you will be bewildered by the hoards of giant gas-guzzling SUV and 4WD vehicles. The funny (and sad) reality is that most of these cars will never leave the bitumen, and the reason people buy them is down to clever marketing which prays on peoples insecurities.

Whilst a large family may need extra seats for all the kids, they should weigh up the their needs and wants. For example, a Landcruiser Sahara ($150,000) and a Honda Oddesey ($47,000) both can seat 7+, but there is a huge difference between the upfront, ongoing maintenance and insurance costs. In certain states, the size and weight of the car even influence how much it costs to register a car

Most prospective car buyers need to cater for their family (or furrmily) needs

A second common argument for buying a big expensive car is safety. Driving an ultra-compact micro electric two seater car and going up against a semi trailer is obviously going to be a very one sided accident. However, multiple studies have shown that the standard, mid size four door car is actually by far the safest class of vehicle to own and drive. Don’t take my word for it – check out the ANCAP safety rating of your car and some other classes – the results speak for themselves https://www.ancap.com.au/safety-ratings

Do not buy a new car

Don’t buy a new car. It is that simple. New cars can depreciate by over a third from just registering it and driving it out of the sales lot! If you don’t believe me just check out redbook.com and see for yourself. The first few years of ownership are just as brutal, with most cars depreciating over 20%+ over their first few years. Its just common sense then, that you would pick one up after the majority of the depreciation has happened (if it was still in good shape, of course)

I drive a 12 year old Subaru station-wagon which I have had for 7 years and now has just under 100,000 kms (62,000 miles) on it. I love it – it has everything I could need: five seats, front and side curtain airbags, air conditioning, power steering, cruise control, roof racks, night driving lights and a heap of space in the back to move stuff around (and when that’s not enough I attach my trailer to the tow-ball).

Brand new this car would have cost me over $40,000. I managed to pick her up second hand from a dealer with only 30,000 kms (18,750 miles) for less than half of that! After I paid $18,000 (including taxes) I spent another $2000 on parts doing a complete maintenance overhaul and fitting some high quality tyres, and then splashing out on some (second hand) roof racks, driving lights, and an upgraded stereo (but more on why I shouldn’t have modified the car later).

She might be a bit older, but that just means shes ‘Experienced’… right?

Drive something economical

I really like my Subaru Forester station wagon, but she does use a lot of fuel compared to my girlfriends Toyota Corolla. I average about 8L/100km (30 MPG) wheras she gets around 5L/100km (47MPG). With the cost of petrol here in Australia averaging at $1.50 per litre (~5.60 per gallon), she easily spends about $60 per month less than me on fuel costs alone.

You also should factor maintenance into the equation when considering economy. Hands down, the Japanese automotive industry is the way to go. Japanese manufacturers such as Mazda, Toyota, Subaru and Mitsubishi consistently rank as the highest makes in terms of ongoing maintenance and user satisfaction. They are typically well designed, efficient and economical cars that are easy to source parts and repair.

The Toyota Corolla is hands down one of the best small to mid sized cars around

Drive something you can afford

Ever heard the saying “if you can’t pay for it twice you can’t afford it“? Well I think its a great saying, and really hammers home the point about avoiding finance. For the majority of personal vehicles, you are far better off paying cash for your car.

Most car loans can be a surefire way to destroy your wealth, and have high interest rates as well as sneaky inbuilt fees. Even leasing a car has a bunch of hidden dangers such as balloon payments. I say most loans, because in some limited situations taking a loan for car might be the lesser or two evils. For example if your business needs a vehicle, you don’t have the capital (or can better use it elsewhere), and you are able to manage the cash-flow write these costs off against tax on profits. Personal car loans are not tax deductible.

While no money down can sound attractive now, be disciplined because it will end up costing you much more in the long run

I actually have been experimenting and reading in the FIRE (financial independence retire early) community about just how much you should spend on your car. A good rule of thumb I found was no more than about two months take-home salary. So if you brought home $5000 (after tax) each month, you shouldn’t be buying anything over $10,000. This rule of thumb actually stacks up really well when figuring out what you can responsibly afford.

Car loans make up a large portion of consumer discretionary spending

Make sure you have the right insurance

The cheapest insurance you’ll ever get is in having an emergency fund. Whilst the amount needed is different for everyone, I would suggest having at least $5000 to start with, which could cover emergency repairs or purchasing a replacement (decent second hand) car. When you have the capacity, you should extend your emergency fund in line with your other personal financial requirements, and I would suggest adding at least 6 months worth of living expenses.

Uh-ho… I hope you have an emergency fund

Make sure you have liability insurance and registration! Some states include personal and third party medical liability in the cost of vehicle registration, but personal and third party property (aka the cost of damage to your and their) car is usually not.

Check out insurers online, where you are likely going to be able to score an online discount quote. For my 12 year old stationwagon, I pay $220 per year which covers me for up to $20m worth of damage (just in case I rear end a ferrari) but also gives me up to $6000 worth of coverage to my car, too. I call it a ‘mini comprehensive’ policy but really its a ‘third party property’ discount online policy from budget direct (budgetdirect.com)

Crank the excess on your liability insurance up to the maximum – you’ll save on premiums. Realistically the chance of a serious accident or write off is very low, and your not going to bother paying excess and dealing with the insurance company for smaller repairs like cracked windscreens or minor scrapes – that is what you have an emergency fund for. Just make sure that you keep your insurer up to date about any damage on the car or you might just void your policy.

Don’t modify your car

Now let me start this with… “Do as I say, not as I do” because I have already revealed I had previously splashed out on some accessories and modifications to my otherwise ‘Stock as a Rock’ station wagon. In general, modifications can be expensive and provide limited benefit.

Sure, if your a hardcore 4X4 fanatic and take your car off-roading every other day, maybe your happy to pay thousands of dollars lifting the suspension. If you drive a lot in rural areas or highways and are concerned by wildlife on the road, then maybe you are justified spending thousands of dollars installing a bull-bar to your car. But for the average motorist, modifications and accessories are just another way to get you to spend money on products you probably don’t need.

Some of the most common modifications I see to cars are

  • Bullbars on city cars
  • Suspension lifts and mud tyres on SUVs / 4WDs (many never see dirt)
  • Expensive sound systems with ‘Doof Doof’ sub-woofers
  • Light bars and spotlights
  • Expensive wheels / Rims
  • Engine performance modifications such as Turbo’s and engine tunes
  • Exhaust system modifications
  • Sports ‘bucket’ seats and steering wheels
  • Snorkel or air intake modifications
  • Electrical wiring upgrades such as second batteries and solar panels
  • Refrigerators and freezers
Suspension lift kits and wheel ‘upgrades’ are some of the most popular and most expensive modifications done to 4WD and SUV’s

Its worth noting that a lot of these are really expensive costing many thousands of dollars each, and in some cases providing limited benefit or functionality compared to some basic alternatives, and some (like sports steering wheels) actually negatively impact safety by removing safety features like airbags. There is a reason the modification and accessory industry exists and that’s primarily to take your money!

Other than being expensive, modifications will typically hurt your cars resale value, and can void your warranty and insurance. Often modifications can affect your cars fuel efficiency too; bull-bars can add hundreds of kilos of weight to your vehicles GVM, and lift kits and big mud tyres are horrendously fuel inefficient on the highway. You need to do your research when looking at potential modifications, and consider all of the cost, risk and safety effects.

Having said all that, I decided that some second hand roof racks and night driving lights would improve the functionality of my car without breaking the budget too much (or voiding my insurance). I also bought a new Bluetooth compatible radio head unit which was on special at my local auto shop which I had fun learning to install. This improved my driving experience massively by enabling me to stream music from my phone and make and receive calls hands-free (using your phone whilst driving is a bad idea and illegal in most places due to the distraction risk it poses). Ironically, and if this doesn’t perfectly summarise the effect modifications have on resale, I was able to sell my old ‘Stock’ radio for three times the price of the aftermarket head unit I installed.

Learn how to do basic servicing

Basic servicing is exactly that… basic. A small level of knowledge on your car is essential for the safe and economic operation. Whilst not everyone is up to changing their oil and filter, there are a few very simple steps everyone can do to save themselves money and make their car last longer

  • Ensure your car is clean and free from excess dirt or mud
  • Keep your tyres clean and correctly inflated
  • Clean or replace your cars air filter
  • Remove unnecessary weight from the car!
Keeping your car clean and the tyres correctly inflated is something that will improve your mileage efficiency that anyone can do, and saves you money while looking good!

A basic oil change can cost over $300 at some places, and to put it in perspective a decent mechanic can do this in about half an hour using about $30 worth of their bulk purchased supplies.

If you have a free hour or two, and a willingness to learn, grab yourself a service manual for around $20 online or in an auto store, or check out YouTube for service how to guides.

When your up to it, grab your daggiest clothes and head to your local auto store to pick up your new oil and filter. These generally retail for under $50, although the myriad of products on offer can be confusing for some – check your vehicles servicing handbook and ask the attendant when choosing the correct grade of oil(s) for your car (for the record I just get whatever is on special that is acceptable for use). You’ll typically need to buy an oil drain pan if you haven’t got one, and an adjustable socket set or wrench.

Remember this can be a dirty job if you let it be, so take your time and don’t rush, and make sure you wear protective equipment. Most auto stores will take back your old oil and participate in recycling programs – so pour your old oil from your drain pan into your (now) empty new oil container, and remember to take it back when you buy supplies for your next purchase

Learning how to do basic servicing can save you a lot of money, and gives you extra skills and the confidence to know how your car works

Buy quality parts

Quality parts are one of the best ways to reduce your ongoing motoring costs. You might not need to buy expensive OEM or Original Equipment Manufacturer branded parts (such as genuine Toyota or GM spares), because of the availability of quality accredited components. These quality parts last longer than knock-offs, which saves you on wear and tear on the actual component. They also reduce the likelihood of catastrophic failure from second order effects – like a radiator hose blowing resulting in you subsequently overheating and ‘cooking’ the engine.

Quality tyres are a must. They provide superior performance such as grip in the wet, which is a massive safety influence that should be your number one priority when choosing tyres. Even though they may be more expensive upfront than the cheaper brands, they wear out less and so actually cost less per kilometre so they are cheaper in the long run.

I usually choose Continental and Pirelli tires for my station wagon. Whilst being the most expensive upfront, they are top of the range engineered rubber tyres. I always choose tyres based on safety reasons as I drive a lot in varied conditions such as rain and ice/snow in the mountains. The original Continentals I fitted to the car cost me $470 and lasted 70,000kms; I have just now fitted a set of Pirelli tyres which cost me $400 but have even better reviews than the continentals.

Drive less!

Whilst another no brainier that’s akin to the ‘Don’t have a car’ argument, driving less is actually an easy way to save on your driving expenses and its easier to do than you think. Minimising the use of your car saves you fuel, wear and tear on the car such as tyres, keeps your odometer lower and saves you on tolls.

This one is more of a mindset change, really. Examples that I have taken is I now try to walk or bicycle to the grocery store and take a backpack for my weekly food shopping – it helps me to buy less (because I physically have to carry it home) but also saves me the use of the car. Whilst not practical all the time, I try to schedule my shopping when I can do this, but in a pinch if its raining I still use my car.

Cycling is a great way to get around urban and suburban environments. There is usually great infrastructure and plenty of paths to use

I stopped working out at my employers gym, and make full use of the local park for my cardio training by running and bicycling, and the best thing is it is literately 2 minutes from my doorstep. I have also bought some free-weights and barbels that I found second hand online, which I use for strength training at home. Together these things have eliminated the need for a 20 minute drive to work (on my day off!) to use the gym facilities.

I still have a 20 minute commute each way to work at the moment, which is’t the best. I recently read Mr Money Moustache’s blog on car use, which showed that the average American spends almost an extra $500 a year for every kilometre they live away from work. The numbers I came up with based on my research were a little more conservative, but I still I estimate I could easily save $2500-3000 a year if I lived closer to work and rode my bicycle.

For me, 20 kilometres each way is still a bit much to bicycle, and I can make other excuses till the cows come home as to why I cant do it – I am often on call and need to be at work at short notice, and I am required to take lots of things to and from work etc etc blah blah blah. In the grand scheme of things though, I consider my 20 minute commute a blessing compared to some of my colleagues who commute 1.5 hours+ each way.

By thinking a bit more about your car use and planning your trips you’ll probably find ways to reduce your driving, whilst making use of more walking, bicycling and public transport. There are other bonuses to not using your car as much too – you’ll be getting fitter doing exercise, taking in fresh air and sunshine and saving money all at once!

Most people have two pretty good feet, so don’t use them just for the accelerator and brake pedals.

Pay annually

If you pay annually you can usually get a discount on things like registration and insurance. By paying upfront rather than on a monthly payment plan, you avoid extra fees and transaction costs. Providers also like the security of being paid in advance for their service, so may provide further discounts based on this.

Some people prefer to pay monthly based on a cash flow aspect, but also a risk management aspect; if they do have an accident and the car is written off, or they decide to sell the car, they aren’t paying for a period of registration or insurance they don’t need. And we all know the money is better off in our own pockets usually.

Thankfully most service providers offer a refund in this situation – for example when I sold my previous car I was given a prorated refund for the remaining 5 months on my policy, but the 3 months left of registration on it was transferred to the new owner so I had to factor his into the sale price of the car. In the case of an accident however, often insurance companies will require the full years contract to be paid out prior to them accepting a claim anyway, or they deduct it from your settlement pay out -so paying yearly upfront is a no brainer!

Do your research and don’t be afraid to haggle

Do your research and Haggle! For example car insurance is crazy sometimes – I’ve found just leaving it to auto renew has costed me hundreds, if not thousands over the past 14 years of car ownership. By shopping around when it’s up for renewal, I can find a better deal which helps me bitch or switch!

Consumer review websites such as Canstar Blue and Choice are an amazing resource for people wanting to get no BS reviews on products like car insurance, reviews on the car themselves, components like tyres or even accessories such as child seats / restraints or roof racks.

Summary

Thanks for reading, hopefully you got a lot out of this. Vehicles are a huge line expense, and so being smart about your cars can really improve your bottom line and help you on your financial journey. Hopefully you can implement some of these tips and tricks to help you towards reaching financial independence

Get FIRE’d

CaptainFI

CaptainFI

Join me in a journey to reach financial independence by making money work for us, and not the other way around. Learn how with hard work, self discipline, patience and some diligent investing, you too can reach Financial Independence and Retire... Eventually. Get FIRE'd!

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