Struggling to save money? You may be car poor

Wondering why you can never come up with enough money to save? The answer may be sitting in your driveway.



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2006 Chevrolet Corvette Z06. X06CH_CR007

Canadians spend a whopping amount of money on their vehicles. The drive to have a spiffy set of wheels, the cost of gas and car insurance and the rate at which some people turn over their cars all contribute to the car-poor phenomenon. I’ve actually worked with people who were spending more on their vehicles than on keep a roof over their heads. Wow!

On average, Canadians spend about 17% of their net income on transportation, slightly higher than the 15% I recommend. But that only tells part of the story. Since a lot of us have our transportation costs well in line, that means some of us are blowing our brains (and our budgets) out on our chariots.

One way we deal with the higher costs is to finance for longer. While three years used to be the average length of a car loan, terms are extending to four, five and even six years. Yet most people who are car junkies seem unwilling to keep a car for that long. So they trade. And they trade. And each time they trade, they take a hit. Auto financing has even created new language to deal with the residual debt that car-maniacs are willing to roll from one vehicle to another: negative equity.

Every week I get letters from people who have signed on for auto financing only to find that they can’t manage the payments. Sadly, once you’ve committed to a vehicle payment you have very few options, particularly if you owe more than your vehicle is worth. On TV, I’ve taken drastic steps with some people who put the car they are driving before their family’s financial security: I make those dopes live in their cars for a weekend. They usually get the message.

Hey, you can drive any kind of car you can afford. But you can’t afford the car you’re driving if:

• it’s costing more than 15% of net income for your total costs;
• you’ve extended your repayment beyond 4 years; or
• you have built up “negative equity.”

You need to seriously reconsider how important your vehicle is in your life. If you’re putting your financial future at risk by not saving, you’re an idiot! If you’re defining yourself by the kind of car you drive, you’re either pretty shallow or pretty insecure.

4 comments on “Struggling to save money? You may be car poor

  1. We have gone carless for two years now so that we can afford the vacation of a lifetime and travel to New Zealand and Australia for three months. Being able to sacrifice our automobile has enabled us to prepay for this adventure so that we don't have to come back to debt. It also helps that we are within walking/biking distance to work.


  2. If you live in a major Canadian city, most likely there is public transit for you. It is what your personal schedule and lifestye will allow some time flexibility to use public transit, walk, car-share and cycle. Either one of these modes or blend in 2 modes. Ride bike to transit station, store bike in bike locker and jump onto public transit.

    I returned to cycling regularily during non-snowy, icy seasons over 19 yrs. ago. Before that I was car-free for over a decade.

    It's not impossible and one remains far more physically fit than using a car daily. I haven't joined any fitness club yet in life because cycling to work gives me free fitness workout simultaneously.

    Certainly if your job isn't making sales calls with your own car and one doesn' have young children, there is some leeway to save alot more transportation money.

    Oh yes, we rent a car 2-3 times annually for transporting big items, or use taxis 6 times annually.


  3. My car's costs (Including all Maintenance, Gasoline, Insurance, and Registration) are just under 10% of my net income.


  4. The article link I gave earlier, summarizes the reality that I save over $300,000+ over a 30 yr. period of being car-free. Based on Canadian Automobile Assoc.'s average costs for owning and using a car.


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