Name: ACCOUNTANT EXPLAINS The #1 Wealth Killer No One Talks About
Uploaded: 2024-12-04T00:18:07.000Z
Duration: 9 min 45 s
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When it comes to building wealth, there's one sneaky expense that can certainly drain your finances without you even realizing it, your car.

Whether it's a luxury sedan or a brand new SUV, cars are often the number one wealth killer.

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The primary reason is that they are a rapidly depreciating asset that declines in value over time, yet many people still splurge on them, often far beyond what they can actually afford.

In fact, the three biggest expenses most people face are their housing, cars and taxes.

While housing and taxes are often fixed or difficult to reduce significantly based on where you live, your car is a discretionary expense that can either set you up for financial success or push you further into debt.

In today's video, I'm going to break down why cars can be such a financial trap and what you can do about it.

Number one, the true cost of owning a car.

Let's start by looking at the actual cost of owning a car.

This isn't just about the sticker price you see at the dealership.

It's about everything that goes along with it.

Leasing or financing payments, taxes, insurance, fuel repairs, and maintenance, and the list goes on and on.

The reality is the average car owner spends a substantial amount each month on their vehicle, often without even realizing how much it's eating into their potential savings.

In fact, the average cost of owning a car in Canada is $1,300 per month.

Similarly, the average cost of owning a car in the U S is $1,015 per month or $12,182 per year.

Now I'd be the first to admit that I've always wanted a Jeep and I even did the calculations to see if it would be worth it.

If you're curious, I will link the video over here.

While I can technically buy in cash, I've decided to invest any savings into my FIRE goals instead.

FIRE being financial independence, retire early.

For now, I'm perfectly content driving a fully paid off car that's been in my family for over 15 years.

Fortunately, I work from home and I live in a convenient location so I don't find myself needing a car on a day to day basis, but I would like a new car that's made to go off-roading and camping for recreational use.

If you ever see me behind the wheels of a Jeep, you'll know that I've officially made it.

Before diving into car ownership, ask yourself if you even need a car in the first place.

Public transportation can be a game changer, especially if you live in a city with a reliable transit system.

Personally, I didn't even have access to a car until I was 30 years old and it wasn't even an issue because I prioritize living in more convenient locations.

In fact, I'd rather pay a little bit more for housing and save on transportation costs.

This not only saves you time, but increases the quality of your life since you can avoid being stuck in traffic every single day.

Living close to work or amenities doesn't just save time.

It's an excuse to get some exercise in as well.

You could choose to walk or even bike to work.

I remember when I lived and worked in downtown, I would walk from one end of downtown Vancouver called English Bay to the water front station on the other side of downtown every day, twice a day, rain or shine.

I was prepared for rainy days by wearing rain boots, carrying an umbrella and keeping a change of shoes at work.

It was the one time I could reliably have to myself every single day.

Not to mention that I was probably in the best shape of my life back then.

Another option is to consider using carpooling or ride sharing services like Uber or Lyft, which can be far more cost effective than owning a car.

You could just be spending $100 to $200 a month for the days that you actually need a car compared to the $1,300 in monthly expenses that come with car ownership.

Plus I personally hate dealing with parking and using these alternatives mean that you can avoid that hassle altogether while saving money.

Now I understand that sometimes a car is a necessity, especially if you need it to get to work or run errands in a suburban area with poor public transportation.

If you decided that you do need a car, consider buying a used car instead.

According to auto trader, the sweet spot is four to six year old vehicles with less than 50,000 miles or about 80,500 kilometers.

Buying used allows someone else to take the biggest hit on depreciation while you still get a reliable vehicle.

You will save a ton of money compared to buying a brand new car.

In fact, on average, a brand new car loses 20% of its value in the first year.

And in five years it will be worth only 40% of what you paid for.

So if you bought a new car for $30,000, it will be worth only $24,000 after the first year and only $12,000 after five years.

Of course, various factors like the make, model, mileage, maintenance, market conditions and accident history are all going to affect the resale value.

Before buying a car is worth considering whether you can pay it for in cash.

This helps ensure you're not only overspending and becoming car poor.

For example, I have a friend who bought a used red Yaris for a $6,000 in cash and she and her partner recently bought a $1.3 million townhouse in Vancouver.

Although I'm sure she can afford a nicer car.

She chose to invest in an appreciating asset instead, a home while still driving a reliable vehicle for the opportunity cost of owning a nicer car.

Many people fall into the trap of buying cars that they can't afford mainly because they view it as a status symbol.

This is a classic example of lifestyle inflation.

When your expenses increase as your income does.

The problem is that a car is a depreciating asset, meaning it loses value the moment you drive it off the lot.

Think what else you can do with that money instead.

For example, the extra three to $400 a month that you are spending on a fancier car can be invested in the stock market over 20 years that could grow into a substantial nest egg, setting you up for a much more comfortable retirement.

Let's say that you decided to upgrade to a nicer car every few years for the next 20 years, adding an extra $400 to your monthly expense over that 20 year span.

That's $96,000 spent on vehicle upgrades alone, which is a prime example of lifestyle inflation eating into your long-term financial goals.

Now imagine that you save the extra $400 per month and invested in the stock market.

Assuming a rate of return of 7% compounded on a monthly basis, you will have $208,000.

Can you imagine what you can be doing with that amount of money?

Remember that a fancy car is a want, not a need.

And most people are what I call car poor.

They're pouring money into a car that they can't really afford while neglecting more important financial priorities, like building an emergency fund or saving up for your retirement.

If you want to avoid being car poor, I have just a video for you to check out over here.

Five, the importance of regular maintenance.

Even if you own a car, regular maintenance is absolutely crucial.

It's about keeping yourself safe and avoiding catastrophic breakdowns.

For example, skipping routine oil changes may seem like a small thing, but it could lead to engine failure over time, which can cost you thousands of dollars to fix or even require a full engine replacement.

Would you rather pay $50 for an oil change now or potentially $5,000 for a new engine later?

So regular upkeep not only extends the life of your vehicle, but also ensures you're not caught off guard by expensive repairs or safety hazards down the road.

Not to mention, it also boosts your car's resale value.

When the time comes to sell, a well maintained car will fetch a much higher price than the one that's being neglected.

So a little investment in maintenance today could save you thousands down the road and even put extra cash in your pocket when you do decide to sell.

Six, reducing car ownership to the absolute minimum.

Car ownership is on the rise and many households not only just own one vehicle, but two and even up to three cars.

Most households in the U S around 91.7% have at least one vehicle and 37% have two and 22.1% have three or more.

If it's just you and your partner and you have two cars, ask yourself if that's truly necessary, especially in today's economy where remote work is more common.

And if one of you works from home, it might be manageable to share a single vehicle.

While it can be a bit of a hassle to coordinate, consider other options like public transportation and ride sharing, or just planning around who has a vehicle on which days.

Reducing car ownership can save you thousands of dollars per year, which can be redirected to savings or investments.

Cars can be a necessity for many, whether it's commuting to work or running errands, especially in areas where public transportation isn't a viable option.

However, it's important to differentiate between a need and a want.

While a luxury car may be tempting, it's essential to weigh the longterm financial impact it can have.

If you can afford it without sacrificing other financial priorities, that's great.

But for most people cars can drain resources that could otherwise go towards building wealth or securing retirement.

Now that you have a clear picture of the financial implications, take some time to reassess your needs before making your next car purchase.

If you found this video helpful, make sure to like subscribe and check out my other videos on the best ways to go about buying a car.

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ACCOUNTANT EXPLAINS The #1 Wealth Killer No One Talks About

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