How to Set a Budget for Your Automobile Expenses and Save Money

Smart ways to save money over your vehicle’s lifetime.

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Automobile costs are the second-largest expense in the United States, after housing, making an automotive budget a crucial component of any financial strategy. Budgeting entails more than just putting money aside for a car purchase. You pay for your car throughout the course of its whole life cycle, and a smart automobile budget accounts for both continuing and one-time expenses like insurance, gas, and repairs.

We assessed where money is spent on automotive goods and services over a five-year ownership period using Edmunds data. We’ll teach you how to buy wisely to keep vehicle-related costs in line with your income, as well as how to cut operational costs in every area.

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Purchasing wisely now will help you avoid problems later

According to Edmunds, your overall automobile expenses should not exceed 20% of your gross income. This is accomplished by purchasing the appropriate vehicle at the appropriate price with the appropriate loan—topics we’ve covered extensively in our Buying and Strategies sections.

Here are a few crucial pointers to help you avoid getting in over your head:

  1. Purchase only what you can afford. To get a personalized “shopping range,” use Edmunds’ Affordability Calculator.
  2. Make saving money on gas a priority.
  3. Vehicles with a low reliability rating should be avoided. In our Forums, you may read what current owners have to say about specific automobiles, as well as what our editors have to say about brand reliability in our Long-Term Road Test Blog.
  4. Before you buy a car, compare warranties, but don’t place too much emphasis on free planned maintenance programs.
  5. When you’ve reduced your options down to two or three automobiles, calculate their True Cost to Own, which compares the costs of vehicle ownership over five years. It’s possible that the automobile that costs more to drive off the lot will end up costing you less in the long run.
  6. Finally, before you buy, look for a decent loan to prevent paying a high interest rate.

How to Save Money on Operating Expenses

Let’s imagine you already have one or two cars in your driveway and aren’t ready to sell or trade them in. Vehicle running expenses such as taxes, fees, and loan interest normally decrease as a car ages, while maintenance, repairs, gasoline, and insurance typically increase. Some charges, though, will set you back more than others over the life of the vehicle.

As shown in the graph above, insurance premiums and fuel account for a whopping 61 percent of vehicle running expenses during a five-year period, while loan interest accounts for only 17 percent. We’ll go over how to save in each of these categories further down.

Taxes and Fees: 8%

State taxes and fees are essentially running costs that you pay up front when you buy or lease a car, so you can only save money in this area when you buy or lease.

You’re already in luck if you live in Alaska, Delaware, Hawaii, Montana, New Hampshire, or Oregon, which have no state automobile sales tax.

Because of the American Recovery and Reinvestment Act of 2009, most Americans can deduct state and local vehicle taxes on their federal tax return if they buy a new passenger vehicle between February 17 and December 31, 2009.

Some states tax consumer cash rebates, which is important to know if you’re deciding between a low APR and cash back. The states that offer tax incentives are revealed in our article ” What Fees Should You Pay?”

If you use your automobile for business, leasing instead of buying could save you money on taxes. You can also choose for a hybrid or alternative-fuel vehicle that qualifies for federal (and occasionally state) tax breaks. For further information, see ” Save Money with Hybrid and Diesel Tax Credits, Car Donations, and Car Leasing.” Always check with a tax professional to see if you qualify for any deductions or credits.

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Loan Interest: 17%

The majority of automobile buyers take out a loan to pay for their new vehicle. Many individuals are unaware, however, that vehicle loans, like mortgages, can be refinanced. Shopping for a better loan deal can lower your monthly payments for the life of your loan if your credit score has improved, interest rates have dropped since your original loan date, or if you suspect you were taken for a ride in the finance office of the dealership (a common occurrence due to shopper naiveté and the tight credit market).

Insurance Premiums: 28%

In order to remain competitive during these difficult economic times, auto insurers have been lowering their rates. So, if you haven’t recently compared your insurance policies, do so now. ” Editors Shop for Auto Insurance on Their Personal Cars,” this article, will show you how we did it for our own vehicles.

Fuel Costs : 33%

The percentage of your monthly automobile budget spent on fuel will fluctuate according to fluctuating gas costs and kilometers traveled. Our Fuel Economy Center has a comprehensive list of ways to save money on petrol, but here are three of the most cost-effective options:

  1. Remove your foot from the accelerator. Your fuel efficiency will improve dramatically if you learn to accelerate less sharply and coast more. When possible, use cruise control.
  2. Shop around for the best deal on gasoline. To locate the cheapest gas in your area, go to sites like or If you’re a member of Costco, you can get gas for 10-15 cents less per gallon than the local average.
  3. Look into gas rebate credit cards, which can provide up to a 5% recurring rebate on all fuel expenditures.

Maintenance: 12% and Repairs: 3%

While some maintenance and repair work, particularly on complex electronics systems, should be done by a dealer, routine maintenance can be done for less money at an independent garage or oil change shop.

However, before going the DIY path, discover when you may save money by using aftermarket car components and when you should go with the manufacturer’s brand.

There are still discounts to be obtained no matter where your automobile is repaired. Some independent repair businesses, as well as dealership service departments, lube and oil change chains, and some independent repair shops, provide coupons or discounts that can save you up to 30% off retail rates. Look for coupons in your mail, e-mail, and local newspaper inserts.

If you forget to bring your coupons to the store, mentioning the service advisor where you saw his advertisement will usually suffice. Bringing your car in on a weekday or scheduling a service appointment online will often result in a discount.

Shop ‘Til Your Costs Drop

All of this has a common theme: saving money necessitates comparative shopping. Fortunately, the internet excels at making this process quick and simple for consumers. If you can cut your car expenses in just one or two areas, such as insurance or gas, you’ll see a significant return on your investment.

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