One expense you have control of in ways you never thought

By William Cowie

Published: Wednesday, June 18 2014 6:00 a.m. MDT

On what do you spend most of your money? For most people, their two biggest expenses are their home and car or cars


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Editor's note: This article originally ran on the personal finance blog Get Rich Slowly. It has been reprinted here with permission.

On what do you spend most of your money? For most people, their two biggest expenses are their home and car or cars. If you remember the post comparing expenses in 1913 to 2012, you might recall the three things that Mr. Average spent most of his “raise” on were:

  • Housing (36 percent of the raise)
  • Income taxes (28 percent)
  • Transportation (24 percent)
A majority of the increase in transportation has, arguably, to do with that wonderful instrument of freedom: the automobile.

Our spectrum of choice in cars is, of course, wider than a mile. Egotistas spend big on the latest model of the coolest car. Hollywood celebrities once flaunted their beblinged Cadillac Escalades at the annual Oscar ceremony. That was before the 2002 recession. When that hit, it suddenly wasn’t cool any more to be seen piloting a behemoth slurping down rivers of Mother Earth’s precious resources. That’s when the curtain went up on the eco-friendly Toyota Prius that Cameron Diaz and other stars rode to the 2003 big event in their sipply little Priuses. Overnight, saving the planet with the Prius became California cool.

That was then.

The top 1 percent, as we saw a few weeks ago, figured out a way to ensure that a full 95 percent of the wealth increase from this economic recovery gets channeled into their pockets. With that, concern for saving the planet went the way of Ugg boots for boys, and now the wheels of choice for gliding down Rodeo Drive has become a Range Rover, starting at $85,000 (new, of course).

While an egotista’s main concern is how to bling up a new Range Rover, the other end of the spectrum is occupied by frugalistas sporting boring robust-o-cars destined for at least 10 more faithful years of service. Those road warriors are inevitably at least 20 years old, scored on Craigslist for $500 from people with more money than savings concern.

Most of us find ourselves somewhere in the middle of the bulge of the ever-present bell curve, seeking to save while driving something a tad less extreme. That includes the mythical Mr. Average, the darling of all statisticians and bloggers.

So what does Mr. Average spend to keep his or her car on the road? The three biggest car expenses are depreciation, fuel and car insurance. How does Mr. Average try to save on these items? Buy a cheaper car, is the usual answer.

Not for insurance. You would think you would save on auto insurance with an economical Toyota Corolla, and it would be cheaper to insure than, say, a Chevy Tahoe that is approximately twice the cost. You would be wrong. In an actual comparative pricing study I did for another blog post, I discovered that insuring the more expensive Tahoe is actually cheaper in total dollars than insuring the economical Corolla (new, as well as used).

Comparing gas mileage and depreciation is relatively easy. Getting a handle on car insurance costs for Mr. Average, however, is not.

You see, car insurance is greatly affected by “other” factors than by your choice of vehicle. According to Insurance.com, there are four basic factors insurance companies use to set your rates, and the actual vehicle is only third on that list.

The biggest factor setting your auto insurance rate is youor, to be more specific, how insurance companies see you. You are bound to hate some and love some of these distinctions, but they’re driven by hard data, collected and analyzed by geeks at their computers.

Who You Are

Age: If you’re under 25, your car insurance rates will be higher. Over 25, it depends. It drops until you become seriously interested in Depends, at which time your car insurance rates will start to climb again.