Transportation does not seem like a big expense item. But there are many components in the transportation area – vehicle cost, maintenance, repairs, insurance, petrol / gas, etc. Add all this together, and transportation can be up to 10% of monthly expenses.
How I save money on transportation
1. Not Leasing or Financing a Car
One of the big decisions I made early on was not to lease or finance a car. This meant I had to wait a while to save the money to afford to buy a car without taking a loan.
Financially it makes no sense to lease or finance a car. The best option is to buy with cash. You can compare the three options (buy / lease / finance) to see why buying makes the most sense. But the simplest test is when you are at a car dealer. The dealer will always ask you if you want to lease or finance. No dealer will ask you if you want to pay cash.
The reason is that leasing and financing are more profitable for the dealer. This means the most profitable option for you is to buy with cash!
2. Buying a Utilitarian Car
For me, the primary purpose of a car is to take me from one place to another; safely. To that end, I bought a Honda. There are several benefits to purchasing a no-frills car:
- Less expensive than upscale / luxury brands
- Lower maintenance costs (Hondas require little maintenance to being with, and even when they do require maintenance, it is cheaper)
- Better reliability (which means less need for any repairs)
- Better mileage than flashier cars (savings on gas / petrol)
- Lower insurance costs (since the car is cheaper)
3. Buying a New Car
This is one area where I went against the traditional FIRE philosophy. I understand the merits of buying a used car – especially the financial benefits. However, I ended up buying a new car for the following reasons:
For me, safety was a big consideration. I wanted a car with the required safety features (blind-spot detection, lane change assist, collision warning, etc.). Safety technology keeps evolving, and when I bought a car, the older models did not have all the features I wanted.
The other reason I bought a new car is that transaction costs are high for a car. Buying and selling a vehicle every 3-5 years is not a good idea. I wanted to buy a car that I could own for many years, and I thought buying a new car was the best way to do that.
4. Saving Money on Other Transportation Expenses
I have bundled my house and car insurance – I have the same insurance company for both. This reduces the insurance premium amount I have to pay every month. Having a utilitarian car means the insurance is also cheaper.
In addition to this, I also have a higher deductible. Which means my spending on car insurance is less. This also forces me to drive safely.
In addition to groceries and other items, I get petrol / gas from Costco, which is typically cheaper than most other gas stations.
In conclusion
Transportation can be a significant expense. By going for a practical car and buying (instead of leasing / financing), I could save money on transportation.
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