It is no secret that owning and maintaining a car is a huge commitment, especially financially. You have to consider costs of fueling, auto insurance costs, and maintenance fees.
A lot of people absolutely need a car for their job or a variety of other reasons when public transportation is not an option for them. However, many people do not realize what they are exactly getting into.
Many people cannot afford their own car or at least they do not realize it. They can provide the upfront costs of the vehicle, but then have a rude awakening when it comes time for an unexpected repair.
80% of car owners endure repairs that cost $500 or more. Meanwhile, 40% of US adults do not have the funds available for a $400+ emergency which means any unexpected cost over $400 must be charged to a credit card.
That is a pretty hefty amount of people which can be interpreted as people not realizing the extent of costs involved with car ownership. Or in other words, a high percentage of Americans underestimate the cost.
Now, back to the 40% of US adults having to charge unexpected costs to a credit card… Why is this such a bad thing? Honestly, it is not that bad… if the credit card holder is able to pay the bill at the end of the month.
However, many people are running into the issue of being unable to afford the bill. This means that you must pay interest as long as you cannot pay it off. Consequently, that means you will end up paying much more for the repair than you needed too, you risk going into credit card debt, and you risk suffering damage to your credit score.
So, how do you avoid this snowballing effect? The key is setting up an emergency savings account which experts recommend building up to about 3-6 months worth of living expenses. That may sound like a lot, but it will really add up if you up to $100-$300 a month into it. Besides, some vehicles may end up needing repair sooner than others, so you will want the excess funds before you burn through them.
Financial experts also advise checking out your budget and finding small areas to cut corners to make this amount of savings happen. You may need to cut some luxuries out of your routine or even pick up a side job in order to have the cash that is not already assigned to go somewhere else in your budget. Save as much cash as possible, that means from gifts, too.
So, do not let your personal vehicle put you in debt. It can be prevented as long as you are proactive, taking the correct steps to put away money that you can use when you really need it. Remember to be aware of how much the typical auto repair actually cost and surely you will be prepared to handle most vehicle-related costs thrown your way.