How Much Is Your Car Costing You?

So Mrs. Mase and I often talk about finances, as you mighg imagine.  A topic that comes up sometimes is where we will move to once we buy a single family home (we live in a condo now). The thing is, Mrs. Mase walks to work, and because of our schedules, we’d likely look into getting a second car.  Also we’ve thought about other alternatives like staying a one car family or even becoming a no car family.  This gets me to thinking: how much are we spending on transportation right now?  How does this compare to data from other people’s lives?  I did a little research and calculations to find out.

The total cost associated with a car are as follows:

Total Operating Car Costs = car payment + depreciation + gas + regular maintenance + insurance + property tax + parking

Whoa.  I hope I didn’t miss anything there.  That’s a lot to consider right?  Even if you’re riding around in a debt-free ride, there are many hidden costs to operating a vehicle.  For this exercise we’ll only consider the ongoing operating costs of a car, not the upfront costs such as a down payment or the initial purchase price.  The goal is to look at how much a car tends to cost on an ongoing basis

The first is what is the largest direct cost – the car payment.  This can either be the principal and interest payment that is paid to a dealer (well, the dealer’s finance company) or a lease payment, for the purposes of this exercise.  The average car payment in America right now is about $450/month.  The number is lower for used cars, at about $350/month.  We are blessed to not have any debt on our car, so for us this number is $0!

Next is depreciation, that cost that hides itself so well that it only shows up when you try to sell the vehicle!  Cars, especially new ones, tend to depreciate at a rapid pace.  In fact, new cars tend to lose about 40% of their value three to four years after they’ve been driven off of the lot.  That is huge.  It’s literally driving around something that is getting less valuable every season – particularly when the newer models come out near the end of the year.  Let’s consider, in this example that the generic car we’re considering is three years into it’s life and it was bought new.  The average new car back in 2013 cost about $30,000, conservatively.  Since we’d still be in the steep part of the depreciation curve at about 15% per year, this means the average new car buyer three years in is paying about $3,060 during their third year of ownership in depreciation costs.  This is $255/month.

For our car, we’ve got a pretty normal sedan that was made in 2008.  Since it’s over eight years old and wasn’t crazy expensive when it first came out, it’s depreciating around $1500/year at this point (ballpark figure), or about $125/month.

Gas is a pretty easy one to calculate.  Fortunately for us in the United States right now, gas is now cheaper than it has been in several years.  Americans are paying far less for gas than they used to in recent memory, especially in states like Texas that have good access to oil and gasoline products.  Right now we spend about $60/month right now for gas for our one car.  It’s a hybrid, so it gets pretty solid gas mileage – at least for 2008 standards!

The average gas bill in America in this era of low gas prices is around $160/month, but that includes the cost of oil.  Backing out say, four oil changes in a year at a cost of $25 each, that’s about $150/month (let’s use a conservative number).

For regular maintenance, let’s use the number of about $1,000/year, or about $83/month for our example of the three year old car.  Insurance-wise, the average cost is around $75/month – let’s ignore full coverage or situations where a young male teenager is going to have super-high premiums.  As far as property taxes go, most states do not have this tax (where I live, Missouri does).  We’ll say this is $0 for the example.  We’ll also say that parking costs are $0 because most people have driveways or garages for their cars (we live in a condo and we rent our space on a monthly basis).  For personal property taxes, insurance, and general maintenance, we budget $135/month.  For parking, we currently pay $80/month.

Let’s add up all of the car-related expenses for both scenarios:

Average Monthly Car Cost = $350 + $255 + $150 + $83 + $75 + $0 + $0 = $913

Average Monthly Car Cost for OMM = $0 + $125 + $60 + $135 + $80 = $400

When all of the numbers are added up, it’s clear that owning and operating a vehicle can be quite costly.  Even once a car is paid off, depreciation and regular costs for upkeep always need to be paid.  The average calculated amount spent for a three year old car for the typical person that borrows to pay for it is around $913/month, according to the calculations above.  Since the average household income is $55,000/year or $4583/month, the average person spend about 20% of their income on a single vehicle (keep in mind the assumption of borrowing to buy a new car).  In terms of cash flow, this only looks like $658/month, or 14% of the average household income, once you back out the depreciation cost that is never seen until the car is sold.

I’m happy to say that our current transportation costs aren’t so bad, but it still hurts to see all those depreciation and maintenance costs pile up.  The thing is, the maintenance part of the equation will only increase over time, but that’s not too bad.  It sure beats paying principal and interest and a ton of depreciation on a new car purchased with borrowed money.  Hopefully this article helps clarify where all of the costs of car ownership by walking through the numbers, like it did for me.  Again, all of the numbers I used were based on data from various sources and a lot of assumptions were made, so the final number is just a rough calculation.

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