We love our cars but they are a big personal budget expense

For a lot of us, commuting to work is a regular part of our lives. And for a lot of us — especially suburban commuters — much of that time is spent behind the wheel of a car. 

But those urban dwellers may still own a car. After all, there are 276 million cars in the U.S. 

Regardless of circumstance, there’s one common theme – transportation of all kinds cost money. Since about 90 percent of households in the U.S. have at least one vehicle, the transportation expense comes in behind housing for your income’s attention.  

For a lot of Americans, auto loan debt continues to grow, even as interest rates increase. Auto loan debt crossed over the $1-trillion mark in 2015 and has risen to more than $1.1 trillion since then, according to the Federal Reserve Bank of St. Louis. 

Loan terms have been increasing along with debt values. The longest common term used to 60 months. Now, they are reaching 72 months and 84 months. 

Household debt, on the whole, has been increasing as well. Keith Newcomb, founder of Full Life Financial in Nashville, Tennessee, said credit for the rise goes to a strengthening economy and people feeling confident. But piling on more debt could put a crimp in your personal finances if your income hasn’t been growing.

Since a car payment, or car payments, is one of your biggest expenses, making sure you have it covered each month ensures you don’t give it back to the lender. Like your housing expense, the car payment is fixed monthly for the length of the loan term. You know each month the amount that needs to be paid. 

Leasing a car could mean a lower monthly payment than if you borrowed to buy the same car. The expense is still fixed for the lease term. But at the end of the lease, you can buy the car or lease a new car. Either way, you will continue to make monthly payments, which means keeping the expense in your budget. 

Perhaps your goal is to pay off the car so you eventually don’t have a payment and want to put the savings toward another goal later. Having a budget will let you know what you have available for a car payment before you walk into a dealership. You may want new but a gently used car may be more in your budget. 

Also, if possible, figure out the shortest loan term that fits within your budget. Longer terms don’t mean you’re stuck with it until the end, however. You can always pay it off early by rounding up each month or making an extra payment during the year. 

Owning a car, whether it’s paid off or not, means you will need to budget for other expenses related to the car. The annual registration and inspection fees are probably the easiest to include in a budget since they come due every year or in some cases every other year. Those fees vary from state to state, particularly the registration fees. But they will be a fixed expense each year. In some states, your registration is based on your car’s value. Since a car is a depreciating asset, your fee should decline each year. 

Car insurance is another fixed expense. You can typically pay the premium monthly, although with most companies there’s a fee for doing so. Or, you could choose to save up and pay the expense every six months and avoid the fee. It depends on how you want to handle your cash flow. 

Insurance costs average about $800 a year. Shopping around regularly to make sure you have the best rate will help keep your rates level if you’re a safe driver with no accidents or moving violations. 

Car maintenance, however, is a variable expense for the most part and a bigger regular hit on your budget. According to AAA, the average cost of owning and operating a car is close to $8,500 annually. Depreciation is the biggest “expense,” although it’s not money that comes out of your pocket. Maintenance and repair costs for new cars averages close to $1,200 a year. 

Budgeting for your fuel expense could be a challenge given that gas prices seem to fluctuate frequently. You can estimate an average by tracking how much you drive and factoring in the price of gas along with the miles-per-gallon rating on the car. 

Oil changes, however, can be a fixed expense if no other expense pops up during the service. But you need to be prepared for the service technician to tell you that the car needs a new air filter or wipers or some other minor repair. 

For big-ticket items that you know you’ll have to replace at some point, such as new tires, you may want to create a separate account for just these kinds of expenses. Aside from those, there are the unexpected car expenses, such as a transmission blowing up on you. That’s where the emergency fund you’ve created in your budget helps. 

But what if your one of the few who doesn’t own a car? You live in an urban area and use the bus or subway along with ride-sharing to get everywhere. That means you don’t have car insurance premiums or a monthly loan payment or maintenance and all of the other costs associated with owning a car. 

Of course, the cost of housing tends to be a lot higher in urban areas, perhaps offsetting the savings of not owning a car. It depends on the big city where you live. It’s also a lifestyle choice.  

Still, transportation costs will be lower than owning a car. The monthly bus or subway pass is a fixed expense while grabbing ride-sharing and taxis in your free time will fluctuate and add up, possibly leaving you with less for entertainment in your budget. 

Of course, you could save money by investing in a bike, preferably while living in a forgiving climate.