Driving Your Wealth, With Frugal Car Ownership

Original article: 2017.  Updated: 2026.

Something pretty much every Australian household deals with is cars. And most of us deal with it really badly.

I actually wrote about this back in 2017, but a lot has changed since then. The numbers are different and the way people buy and finance cars has evolved.

There’s also a financial trap that I think more Aussies are caught in now than ever before – one that’s costing them between one and two million dollars over their working life.

I call it the car mortgage. And once you see it, you can’t unsee it.

So let’s walk through what cars are costing us these days, explain how the car mortgage works, how it traps people, and how we can get the benefits of car ownership without crushing your finances – and while not having to walk 20 kilometres to get groceries.

I’ll also touch on our own situation later, including the Tesla we bought a couple of years ago. Because there’s an important lesson behind a purchase like that which not many people notice.

Let’s get into it.

What cars cost in Australia

We’ll start with the numbers, because they’ve gotten worse since 2017.

According to the Australian Automobile Association – the average Aussie household is now spending around $23,389 per year on cars. That’s about $430 a week.

Now, that’s not what cars COST, but what people are SPENDING on cars.  Keep that in mind.

And let that sink in for a second. The average household is dropping over twenty grand a year just to get around.  Remember, you’d need like $35k of before tax income as an average earner to cover that.

Now, that figure does include loan repayments. The data shows the average household is paying about $212 a week just in car loan repayments – that’s around $11,000 a year.  So roughly half of that $23k is loan repayments, and the other half is everything else.

If we break down the “everything else” – the running costs per household  – it looks something like this:

• Fuel – around $5,000 a year
• Rego and licensing – about $1,800 a year
• Servicing and tyres – about $1,800 a year
• Insurance – around $1,300 to $1,400 per car
• Plus depreciation, tolls, roadside assistance and so on

Basically, a paid-off car still costs you somewhere around $6,000 a year – that figure comes from RACQ.  For a two-car household with no loans, you’re looking at roughly $12,000 a year.

Add a car loan or two on top, and you’re easily back over $20,000.

This is one of those expenses people just accept as inevitable. Like food or internet.  But it’s actually one of the most controllable, highest-impact financial decisions you make.

The car mortgage

Now I want to introduce something I’ve been thinking about in recent years. I call it the car mortgage.

Here’s what it looks like…

Someone buys a $50,000 car on a five-year loan. They drive it for three or four years. Just as the loan is coming down, they trade it in for something newer – and maybe a bit nicer if their income has gone up. The remaining loan just gets rolled into a new loan, because they finance the upgrade.

And then they do this again. And again. And again.

The result is, they never actually pay off their car. It becomes a revolving car loan that fluctuates with each purchase.  In effect, they create a permanent monthly car payment for the rest of their working lives.
It’s basically like a mortgage, but on a depreciating lifestyle asset.

This is certifiably insane to me.

It would be funnier if it wasn’t so common.  Walk through your suburb and look at how many almost-new cars are parked in driveways.  A huge chunk of those are sitting on permanent loans.

The crazy part is that most people don’t even feel rich while doing this. They just feel normal.  Because everyone around them is doing the same thing.  As the novelty wears off, they start looking for their next car!

When you do the numbers on this behaviour, the cost is mindblowing.  All those repayments could’ve been compounding in shares and building wealth, or here’s a crazy thought – paying down an actual mortgage.

I’m pretty pragmatic when it comes to what people like to spend on, but car loans are one thing that drives me crazy.  It’s basically just setting your money on fire.

In my mind, loans are acceptable for four walls, but never for four wheels.

Total cost of car ownership

This brings me to something that gets overlooked all the time. The total cost of ownership.

When most people look at a car, they look at the sticker price. Maybe they consider fuel. And that’s about it.

But the true cost is sticker price PLUS fuel, PLUS insurance, PLUS servicing, PLUS rego, PLUS depreciation, PLUS the opportunity cost of all that money sitting in a depreciating asset.

A $30,000 car and a $60,000 car aren’t just a $30,000 difference. The pricier one usually has higher insurance, sometimes higher rego, more expensive servicing, costlier tyres, and worse depreciation.  And it’s often worse than this, because $80k, $100k, and even $120k cars are far more common now.

Even using those modest numbers, the real gap between those two cars over 10 years might be closer to $50,000 or $60,000. And if you’ve got a loan – which most do – it’s even more.

Speaking of which, people focus on monthly repayments and think “I can easily afford this.”  But to me, the biggest cost is the one you don’t see.  The opportunity cost of what you could’ve done with the money instead.

The 40-year opportunity cost

Let’s say a typical household spends $20,000 a year on cars. That’s pretty close to the national average.

Now imagine instead they ran a much more sensible setup.  They decide they’ll build wealth first, and fancy stuff can come later.  So they opt for modest cars, paid for in cash, kept for 10 years, optimised insurance, etc. Let’s say they got that bill down to $10,000 a year between two cars.

That’s $10,000 a year freed up.  Invested at a 7% return over a 40-year working life, that becomes $2 million.

Two. Million. Dollars.  Yes there’s inflation, but come on – that’s a stupid amount of money.  People who say it’s not possible for a normal person to become wealthy just haven’t done the numbers.  And when you optimise nearly every area of life, those number get a lot bigger, a lot faster – because who wants to wait 40 years?  I certainly don’t.

And I haven’t said anything about going car-free or walking 10 kilometers to work. That’s just from being a bit more sensible.  Not financing brand-new cars on forever loans.  Not constantly upgrading.  Choosing something reliable and keeping it for a decent length of time.

The reason it’s so devastating is because it’s invisible. Nobody decides “I’m going to spend $2 million on cars.”  But effectively, that’s what they do, one week at a time.

Cars as identity (which has gotten way worse)

OK, let’s talk about the emotional side, because the numbers alone don’t change anyone’s behaviour.

Cars have always been tied up with identity in Australia. But in the modern era, social media has amplified this a lot.

People aren’t just buying cars to drive.  They’re buying cars for how the car makes them feel about themselves.  For how it looks in the driveway.  For the photo on Instagram.  For the perception when they roll up to a friend’s place.

There’s also this weird thing where people will absolutely judge someone for driving an older or cheaper car. Like it says something about their worth as a person.

I’d argue it says the exact opposite. Most genuinely wealthy people I’ve met or read about drive pretty modest cars. Because they’ve already worked out what most people haven’t — the car isn’t the wealth. The car is what stops you from having wealth.

The book The Millionaire Next Door covered this years ago.  Most real millionaires drive used practical cars like Toyotas and Hondas. The people with loans or leases for BMWs and Mercs are usually living paycheck to paycheck despite a high income.

In fact, I posted about this in my newsletter recently, but the wealthiest guy I know drives a VW Golf that couldn’t be worth more than $10k.  He has about $10m of investments, and is financially independent.  He’s not a tightarse either in case you’re wondering – him and his wife spend a lot on travel.

But it always reminds me that, like Morgan Housel said, wealth is what you can’t see.  It’s in assets owned behind the scenes – real estate, businesses, big share portfolios.

So if you’re judging someone based on the car they drive, just remember you might be judging it the wrong way round!

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What you can do about it

Alright, so what are some genuine car tips in practical terms if you’re looking to save money?

Here’s a quick list of things that all add up, a lot of it is just boring common sense:

• Buy used. A two or three year old car has done most of its depreciation but still has plenty of life left.
• Related to that, minimise the value of your car. Every dollar not tied up in a car is money that can be invested growing for you.
• Pay cash for cars. If you can’t afford it in cash, you probably can’t afford the car.
• Keep it for a long time. Ten years is a great target. Newer cars can absolutely last that long if maintained.
• Avoid upgrading for the sake of it. Thinking “I deserve something nicer” is the most expensive feeling in personal finance, and it’s an unquenchable thirst.
• Drive less when you can. Combine trips, work from home if possible, walk or bike for short trips and spend time closer to home.
• Shop around for insurance, and go for maximum excess you can afford to lower the premiums.
• Don’t assume you need a giant car if you have a child. Understand, this is a completely new phenomenon. A couple decades ago families just drove normal sedans and wagons.  Also, if you need a big car a few times a year for trips away, you can always hire one.  At least do the math.  It might work out better than owning the more expensive car the whole time (remember to factor in depreciation and opportunity cost too!).
• If you’re a two-car household, consider whether you actually need two cars.  Many times you can get away with one.  By deliberately picking a job or property location to make it feasible.  Or one spouse uses public transport or uber, or even an e-bike or e-scooter.

None of these are dramatic changes. You can still have a perfectly good car. You can still drive wherever you want. You’re just opting out of the car mortgage system and trimming the excess that bleeds people dry.

A quick word on EVs

I’ll touch on EVs briefly because people are gonna ask.

Are they worth it? It depends.

If you’ve got a long commute and you’re spending a fortune on fuel, then yes, an EV can make a lot of sense. Charging at home is way cheaper than petrol – like $15 vs $90.  And maintenance costs are far lower over time.

Personal, for pure functional city driving I’d probably look at something like a BYD Dolphin or an MG – they’re some of the more affordable options on the market right now.

But you have to actually run the numbers. If the EV costs you $15,000 more upfront, but saves you $3,000 per year – that’s a 5 year payback and a decent annual saving.

If you’re not driving much, the maths might not make sense. Cheap reliable petrol cars are probably still cheapers.  And if you don’t drive much, then the better question is whether you need a car at all.

Public transport, Uber, and car-share services can easily work out cheaper than ownership if your usage is low. Some people might genuinely be better off selling their car and using a mix of these instead. Depends on your situation.

Same goes for couples – if you live close to work or public transport, you might only need one car between you. Especially if you’re single in a well-connected area. That’s potentially saving tens of thousands in a decade from just one decision.

The point is,  just think through all the options and find the optimal balance between convenience and savings.

Why we bought a new car

Now, I have to be honest about my own situation, because it’s changed since I wrote the original article in 2017.

Back then we had a beat-up old Commodore and a scooter.  The commodore had a bunch of problems, so we got a second hand Hyundai i30.  This served us well for a number of years.

But as our situation evolved.  We’d reached FI, and because we started earning part-time income, our wealth grew quite a bit in the following 5 years – beyond our original needs.

So a couple of years ago, we used money saved from our part-time income to buy a new Tesla.  Now, some people might see that as hypocritical.  “Aren’t you telling people to be frugal with cars?”

But here’s the thing.  Frugality isn’t forever.  It’s a tool.  You use it to build wealth and freedom.

My philosophy has always been: Once you’ve built it, you get to decide what to spend it on.  I combine that with my other motto:  Freedom before fancy shit.

I didn’t go from a cheap car to a Tesla on a whim overnight. I spent 15 years happily driving very simple, basic cars.  And by waiting until we’d built wealth before indulging, it means we could pay for it with cash, using bonus income from work that we weren’t trapped in.

That’s the whole point. By being patient and waiting, you can have both – the freedom AND the things.  You’re spending from a position of strength – you can enjoy those things without it affecting your freedom.

The mistake most people make is trying to skip straight to the rewards, which means they never get the freedom.

If I’d bought a Tesla in 2017 on a loan, it would’ve added YEARS to our path. That’s a horrible tradeoff.  But buying it now, after the wealth is already built, it doesn’t impact our lifestyle in any way.

That’s a really important distinction to make. You’re not denying yourself nice things forever. You’re just putting them in the most productive order.

Wrap up

Cars are one of the biggest financial decisions you make in your life.
Most people, especially young people, tend to do really badly in this area.

This ‘car mortgage’ habit comes at such a giant cost the younger you are, because the opportunity cost of compounding is so much higher.

But this is also one one of the easiest places to make a huge improvement. You just have to be a bit more thoughtful – buy sensibly, pay cash, keep cars longer, and avoid the upgrade trap.

Do that, and over a working life you’re looking at potentially hundreds of thousands or even millions of dollars more in wealth.

And once you’ve built that wealth, you can do whatever the hell you like – including buying the car you’ve always wanted.

Resources you might find helpful:

 Financial Advice
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 Mortgage Broker
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 Strong Money Australia Book
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