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الخميس، 13 أكتوبر 2016

31 Days to Financial Independence (Day 9): Trimming Your Spending – Transportation

“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!

Last time, we started looking at the average American family budget, going through each category and examining how one could trim the cost of typical expenses in that category. Here’s the “average American family budget” that we’re looking at, along with links back to the earlier entries on those specific areas:

Housing – $10,080
Transportation – $9,004
Taxes – $7,432
Utilities – $7,068
Food – $6,602
Insurance (including things like pensions) – $5,528
Debt Payments – $5,252
Healthcare – $3,631
Entertainment – $2,564
Cash Contributions – $1,834
Apparel and Services – $1,604
Education – $1,138
Vices – $775
Miscellaneous – $664
Personal Care – $608
TOTAL – $63,784

Today, we’re going to look at the next category in this budget – transportation. It’s the budget category you tap whenever you buy gas, make a car payment, get an oil change, fly somewhere, take a taxi or Uber, or use mass transit. Unsurprisingly, transportation gobbles up almost $10,000 a year in the average family budget.

So, how does the average American actually transport themselves from place to place?

The average American family owns 2.28 cars. 85% of new cars and 53% of used cars are financed, according to Business Insider. Car loans are simply a reality for the majority of Americans, as are all of the costs of car ownership and operation.

Gallup reports that the average American takes 2.2 airline flights per year. That’s an average, of course; many Americans take zero, while some Americans take many more than two or three flights a year.

What this data boils down to is this: Most Americans use their car for transportation to and from work and for local errands most of the time and then travel further distances on relatively rare occasion, using planes, cars, trains, buses, and other means. So, what we’re going to look at are mechanisms for reducing the costs of that picture. If that represents the average American’s transportation habits, how can the average American save money on transportation?

Exercise #9 – Cutting Back on Transportation Spending

The rest of this article consists of a long list of specific tactics that you can use to trim your annual transportation costs. Given that everyone lives a somewhat different life, some of these tactics are going to seem useful and sensible to you, others will seem like a stretch to you, and still others won’t apply at all. That’s okay. Ignore the ones that don’t apply. Make an effort to adopt the most sensible ones. Then, give the others a trial run and see if it’s something that can work for you. Commit to some of the challenging ones for 30 days and see if they work, or apply them during the relatively rare situations when those costs come up.

Remember, your overall goal is to cut back hard on the areas of life that are less important to you – the shallows – so that you can afford the “deep” areas of your life both today and tomorrow. Keep that in mind as you read each tip. Is this tip cutting back on something that’s really important to me, that amounts to a core life value? If not, why not cut it so that I can afford those things that really matter?

Let’s dig in.

Take public transportation to and from work. Instead of driving your car to work, take the bus or the train or the subway to work and back. If you assume that every mile you drive in your car effectively costs you around $0.60 once you figure in gas, oil, other maintenance tasks, insurance, registration, and so forth – that number is rounded down from AAA’s actual estimate – then if you have a 10-mile commute to work each way, your cost is going to be $12 a day for commuting in your own car, or $60 a week. Seven-day mass transit passes in almost every metro area range from $20 to $35 and longer-term ones are even cheaper per day. In other words, if you drive more than, say, seven or eight miles each way to work, mass transit is cheaper and the further you commute, the better the deal is.

Organize a carpool. For a lot of people, mass transit isn’t an option. If you live in a smaller city or a town, it might not be available or cost-effective. However, organizing a carpool might make a lot of sense. Is there anyone else who lives near you who works near where you do and has similar hours? If so, driving back and forth to work with that person even once or twice a week can save you both money. If you have a 20-mile round-trip commute and can share a ride with someone else twice a week, that means you’re eliminating 20 miles of driving per week, which given the earlier number saves you $12 a week – or $624 a year. That’s a lot of savings, and it gets even bigger with more frequent ride sharing, a longer commute, or more carpool participants.

Walk or bicycle to work, especially when the weather is nice. If you happen to live pretty close to your workplace, it might actually be cost-efficient to walk or ride a bicycle to work instead of driving or taking mass transit. Not only does that reduce the cost of the commute to effectively zero, it also provides some mild exercise along the way. For several years, I had a four-mile bicycle commute that enabled me to avoid the cost of a car or a mass transit permit.

Optimize the route you regularly take to and from work. If you’re still committed to driving to and from work every day, make sure that your route is as efficient as possible. It’s very likely that you’re using the route you initially discovered to get to and from work, and that route may not be the most efficient one. Spend some time with a GPS program to see whether or not there is a more efficient path to your workplace. Just shaving a single mile off of your drive each and every day adds up to $312 in savings per year (if we stick with that $0.60/mile metric).

Drive efficiently. If you drive efficiently, you can maximize the number of miles that you get out of a tank of gas. Some simple tweaks to your driving technique can really help. Don’t accelerate hard unless absolutely necessary. Don’t brake unless necessary, either. Instead, simply drive as steadily as possible, allow the vehicle to naturally pick up speed when going down hills, and don’t accelerate going up hills – instead, gradually regain your original speed once past the hill. Stick to the speed limit and try to avoid going over 65 mph if you can help it as fuel efficiency goes rapidly downhill at those speeds. Plan ahead so that you can turn right most of the time instead of turning left, as it drastically reduces idling time in cities. Little driving tweaks like that will make your car a lot more efficient.

Turn off the engine when waiting more than a few seconds. If you’re waiting for someone to run an errand or waiting on construction, turn off the engine on your car. Leaving your engine running while you just sit there in park consumes fuel. While this is a minor thing, it’s such a simple step that takes no time at all and it does save money.

Keep your tires properly inflated. Buy a $1 tire pressure gauge from your local auto supply store and keep it in your glove box. Whenever you’re at a gas station and you’re waiting for someone to finish up their business inside, check your tire pressure and make sure it matches the pressure recommended in your car manual. If it’s low, drive over to the free air pump and fill up each tire to the recommended pressure – it’s incredibly easy to do, not much more complex than pumping gas. Every two PSI (the pressure number given to you by your gauge) that your tires are below the recommended pressure costs you 1% in fuel efficiency. So, if your recommended PSI is 35 and your tires average 23, filling them up improves your fuel efficiency by 6% for free. That’s a 6% reduction in your gasoline costs to keep your car going. (Of course, air slowly leaks over time, so you’ll have to do it again in the future.)

Use the discount card associated with your local gas station chain of choice. Most gas station chains offer a Visa or MasterCard that offers some sort of significant discount when buying gas, either in the form of direct savings at the pump or a very good cash back rate or rewards rate. Sign up for this card, use it exclusively for gas purchases, and pay the bill off in full every month and you’ll naturally reduce the overall cost of your fuel.

Buy gas on the “smart” side of state lines. If you cross state lines during the course of your drive, make sure that you buy your gas in the state with the better gas prices. Some state borders see differences of as much as 15% per gallon, so stopping for gas on the right side of the border makes a lot of sense. It’s also worthwhile to avoid gas stations right near the state border, as they are often a bit pricier than stations closer to the interior of the less expensive state. One great tool for helping out with this is the GasBuddy smartphone app, which helps you find the best deals on gas along your route.

Shop around for car maintenance and repairs. If your car is rattling and clanking, don’t hesitate to ask around your social network for recommendations. Furthermore, don’t hesitate to go to multiple repair shops to get an estimate on the repair before making a decision. Different shops will sometimes diagnose different things and also give you different bills for the same problem. If you need a third or a fourth opinion, don’t be afraid to get one, then go with the reputable shop that offers you the best deal. Not only will this process save you some money, it’ll also save you some headaches, too.

Do basic maintenance and repairs yourself. The cost of changing your own oil is substantially cheaper than doing it at the car shop or at the oil change place – and it’s a really easy task. The same is true for many minor car repairs and other tasks, like changing windshield wiper blades, checking and changing transmission fluid, changing an air filter or an oil filter, and so on. These tasks are explained with great clarity in your owner’s manual and you can easily find YouTube videos to help you with any rough spots. All of these tasks take just a few minutes at home and save you substantially over the cost of paying someone to do it.

When a car is paid off, keep making “car payments” to a savings account. It’s easy to think “freedom!” when you’ve paid off a car loan, but instead of just pocketing the money you’re no longer paying on that car loan each month, put that same amount in a savings account instead. Let’s say, for example, that you got a $10,000 car loan over 60 months with a 3% interest rate. That means your monthly payments would be $180 a month (and you’d pay a total of $781 in interest). At the end of that loan, start putting $180 a month into savings instead. After 60 months, assuming your savings account returns 1% annually, you’d have $11,018 in that account and you could buy that car with cash. Doing things this way means that, going forward, the interest works for you. You can actually save a little less each month and then always have the cash you need to replace a car.

Drive your current car until mechanical issues begin to mount rather than quickly getting a “new” car. Many people get a desire for a new car while their current automobile has many more good miles left on it. That’s a huge financial misstep. The best strategy is to continue to drive your current car until repair bills begin to mount and upcoming major problems begin to loom, then trade in the car on a replacement model. Follow the above strategy in selecting a reliable late model used car and you’ll find yourself in the most financially efficient car replacement cycle.

Buy late-model used cars with good fuel efficiency from reliable manufacturers. This is absolutely the best way to maximize the number of reliable years you’ll get from a car for your dollar. New cars have a longer lifespan, of course, but you pay a lot for those first few years. Older cars are cheaper, but have a much shorter lifespan. The sweet spot is in the middle, with cars that are between three and five years old that are manufactured by reliable car manufacturers like Honda and Toyota. Make those cars your priority when buying a new one.

Reduce your family’s total car count by one. If your family currently has three cars, ask yourself if you can make things work with two cars. If you have two cars, can you make things work with one car? If you can, not only do you recoup the value of the car (likely using that money to pay off other car loans or other debts), but you eliminate the annual cost of registration and the monthly cost of insurance as well. You also likely become somewhat more efficient in terms of how much you drive. That’s a pretty significant bundle of cash.

Evaluate many modes of transportation for longer trips. Is it less expensive to fly and rent a car at your destination? What about taking a bus, or a train? Do you really need a car at your destination? What about driving your own car? Taking the time to figure out which option is the least expensive for you can make all the difference in the world. Here’s a great “fly or drive” calculator that can help you figure out which move is right for you.

Be flexible in terms of flying. If at all possible, be flexible in terms of the times you need to fly. Shop for flights well in advance of when you might consider traveling and purchase tickets during inexpensive periods. Compare flights at different times and on different days of the week to see how the prices compare, then do trip planning around the inexpensive fights. This works well for some purposes, like planning out a family vacation.

Pack a smart carry-on bag. Put a number of small snacks and an empty water bottle into your carry-on bag when flying. You can easily fill up the water bottle once you’re through airport security, saving you the price of expensive airline beverages. The same philosophy is true with snacks that you bring through security, as they can save you the price of expensive airline snacks and meals.

Consider other means for taking extra luggage home. If your airline charges a hefty fee for checking your bags, consider shipping a large box with your belongings home using a shipping service. Not only is it potentially a lot cheaper than checking a bag, it also can make the trip more convenient (and there’s a lower likelihood of a lost bag, to boot). It’s well worth the time to compare the costs.

Again, the key thing to remember when considering all of these options is that your overall goal is to cut back hard on the areas of life that are less important to you – the shallows – so that you can afford the “deep” areas of your life both today and tomorrow. As you consider each tip, give some serious thought as to whether or not that particular tip affects something that’s truly one of the “deep” areas of your life or whether or not you’re just acting reflexively. Is this thing really important to you, especially when compared to the things that are most important in your life?

Next time, we’ll keep digging through the categories in that average American budget.

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