When I consider that the majority of people who commute to work as employees do so primarily by car, I become frustrated. I can at least deduct the miles I drive for business, but as an employee, my commute is not deductible.
As a result, as a certified public accountant, I was curious about the affordability of car ownership for the average employee. I began calculating all the costs associated with maintaining a car, and frankly, it does not add up. First, there is the car payment; the average car payment of $474 does not take the terms into account. Lengthening the loan term is what consumers have done in an effort to reduce their monthly auto payments. Now, the average loan term is 66 months, or 5 and a half years, rather than 60 months or 5 years. If reduced to the industry standard established years ago, this $474 monthly payment would be approximately $515 for five years. Consumers are obligated to pay for a vehicle for years after the warranty expires. Can you imagine paying a $474 car payment and receiving a repair bill of $800 or more?
Auto insurance is also expensive. I am unsure of the cost of complete coverage. The only benefit of paying cash is that you are not required to purchase full coverage. As a safe driver, I opted out of paying for collision and comprehensive coverage when the car was new, which saved me thousands. Obviously, that is your decision to make. When you have a car loan, the bank requires you to have full coverage, and your insurance premium is calculated based on your driving record, your age, the vehicle, and your location, among other factors. Assuming you have a clean driving record and have been driving for years, a reasonable monthly insurance payment would be $150.
This totals $624 per month. Add oil changes, maintenance, registration, a few car washes, and no repairs to oil changes, maintenance, and registration. It totals approximately $750 per month, excluding gas. That $700 is after-tax income, so you must earn approximately $850 before taxes to have $700 to spend. That is a potential rent payment.
Let's examine employee incomes to determine if this is affordable. Consider a single individual who earns $30,000 annually. You deduct 7.65% for social security and medicare taxes and an additional 7.35% for income taxes. That equates to 15%. Let's not even consider health insurance withholding, which for many individuals can easily exceed $2,000 per year. 85 percent of $30,000 yields a yearly net income of $25,500. $25,500 divided by twelve yields $2,125. You are left with $1,425 per month after deducting the conservative car-carrying expense of $700.
Now that you have $1,425, you must pay for everything else. In Florida, where I reside, a rental apartment with 1 bedroom and 1.5 bathrooms costs approximately $1000 per month. The remaining $425 is insufficient to cover the electric, food, gas, phone, etc. Like I said before it does not add up. Stretching out the payments only exacerbates the misery. The payment term should be shortened, not lengthened. The longer the period, the greater the possibility that something unanticipated will occur and you won't have the necessary funds because your car ate them. This is a major reason why so many millennials are staying at home. They are also victims of the high cost of automobiles.
In the past few decades, the price of automobiles has decreased dramatically. Even if you are earning a decent salary, in my example, $30k per year is significantly higher than many jobs paying minimum wage or close to it (in Florida, minimum wage is $7.93 per hour or $16,495 per year). The average monthly automobile payment is unaffordable.
This realization enrages me. You could do everything right and still be behind the eight ball. I hope this article sheds light on the challenges that employees and households face on a daily basis. Know what you're getting into before you sign on the dotted line and agree to pay $474 per month for the next five and a half years."""
