4 Ways Owning a Car Can Negatively Impact Your Financial Stability — And How To Fix Them
After a home, cars are the largest financial assets that average Americans purchase. Car ownership plays a vital role in social and economic mobility in the U.S., and while it can have positive effects on a person’s life, the pressure to own a vehicle and pay for its associated expenses can be mentally and financially crippling.
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A recent MarketWatch Guides study on “How Car Ownership Impacts Your Wallet and Well-Being” looked at the financial challenges and emotional impacts of owning a car. The study indicated that 46% of drivers surveyed found it more difficult to save or invest because of their car-related expenses. Additionally, 20% of drivers reported feeling “very” to “extremely” stressed.
Speaking to Streetsblog, data journalist Ricardo Rodriguez, who worked on the study, said, “Car ownership is deeply ingrained in the culture and is often viewed as a symbol of independence, success, and social status. As a result, there is societal pressure to own a car, regardless of one’s financial means. This expectation can influence individuals to prioritize car ownership over other financial responsibilities, even if it means stretching their budget.”
Owning a car is a privilege that provides freedom and convenience. But it’s also a necessity and crucial investment for many Americans, despite the cost burden. With the price of cars, their maintenance, fuel, insurance and unexpected repairs being unlikely to become affordable anytime soon, more people will see their finances negatively impacted by their car purchase decisions in a number of ways.
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4 Ways a Car Can Adversely Impact Your Financial Stability and Tips on How To Fix Them
Depreciation
No matter how low you keep its mileage and how well you maintain it, a new car loses value very quickly. While it doesn’t figure into day-to-day auto expenses, as soon as you buy a car, your financial investment is worth substantially less and less every year.
One way to minimize the impact of depreciation is to buy a used vehicle. There’s a school of thought that suggests you should never buy new — that purchasing a rapidly deflating asset goes against all logic. Regardless, doing your research, making wise choices and buying within your means will help you lose less down the road.
High Costs of Car Ownership
A car isn’t like a toaster. While the small kitchen appliance requires little more than a “plug it in and use it until it dies” mentality, a vehicle’s future expenses are seemingly endless — requiring fuel to make it run, maintenance when it breaks down and insurance to make driving it legal. That’s after you’ve put down a large payment or agreed to a lofty monthly payment scheme.
Everything is expensive when it comes to cars. “The availability of easy access to auto loans and financing options makes it tempting for individuals to purchase cars beyond their means,” said Rodriguez. Many struggle with keeping up with car-related expenses, so paying outside costs of living and having any hope of saving or investing money is even more difficult.
Staying on top of your finances is easier when you’ve saved enough cash and made an honest budget before you make your car purchase. As MarketWatch noted, understanding the full extent of car ownership, like warranties and maintenance schedules, before committing all that money is essential to making informed decisions about buying a car.
Affording Life’s Essentials
According to MarketWatch, with so much money going to car payments and upkeep, 40% reported that they haven’t been able to afford other life essentials due to their car expenses. “Over one-in-eight have found themselves living paycheck to paycheck due to the financial strain of their cars, making it their largest financial burden,” MarketWatch detailed.
Americans are paying bills late, building up credit card balances and getting second jobs to afford car expenses, according to the study. Others are resorting to the equally dangerous steps of doing car maintenance themselves and cutting their insurance to save money on their car and other necessities. Better options are trying to refinance or defer loan payments and switching your loan provider to one that will offer you a premium (and terms that fit your finances).
Well-Being
Money problems can affect your mental health and vice versa. If you’re feeling low or depressed, you may lack motivation to manage your finances. And a worsening financial situation may make you look for the brief high that an impulsive or expensive car purchase may initially provide.
Feeling guilty owning a car while you’re falling behind on other important financial obligations is more common than you think. That’s why it’s more important than ever to take the time to research your car purchase options thoroughly. Setting a budget beforehand and sticking to it can also prevent impulsive spending and let you make an informed choice that aligns with your budget and needs.
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This article originally appeared on GOBankingRates.com: 4 Ways Owning a Car Can Negatively Impact Your Financial Stability — And How To Fix Them
