How much does your car cost?
On the surface, it seems like an easy question. You’ve got your sticker price, anywhere from $0 to a hundred thousand or more. That’s easy enough to remember. Then you’ve got your gas. The price fluctuates, and you drive a bit more in the summer, but you can still guestimate your fuel costs pretty easily. Oh, but then there’s your insurance, which you pay bi-yearly, and that’s for both yours and your husband’s cars – you’ll have to work a bit to get that number.
And there’s that car tax your town charges you, the one you forget about every year and get mad about all over again. And your toll transponder account - the funding on that is pretty erratic. And the oil changes a couple times a year (sometimes you overpay and just let them replace the windshield wipers for you, too). And you always buy Hondas, which need their timing belt changed at 100k miles. And let’s be realistic and count on one speeding or parking ticket each year. And transmission fluid…and…and…
I think you see my point. Estimating your car costs sounds simple on the surface, but you can quickly drown in detail. It’s almost impossible to know how much you spend. This is infuriating for two reasons. First, because it’s often a person’s biggest expense behind housing. Also, because so many prices around cars are transparent. When you go to buy a car, the price is literally stuck to the windshield. As you fill up your tank, the price flashes in lights right at eye level. Shouldn’t this be easier?
Without a clear number, I think most of us just throw up our hands and say “Whatever - I need a car for my life, so I’ll just pay whatever it costs!” But this is a huge mistake, because most people can stand to optimize their car finances. If my coworkers and extended family at all represent the greater population, Americans are throwing way too much money at their car habits. In fact, I’d bet the average person could wring a thousand dollar per year of savings with some simple, common sense changes.
But how do we optimize if we don’t know how much we actually spend? It’s back to our original problem. Fortunately, there are a few simple ways to determine your car spending. These are by no means exact numbers; in fact, they are estimates by design.
For me, the two best ways to estimate your car costs are per year or per mile driven. Each can help you save money in a different way.
Cost Per Year
It’s illuminating to know how much of your yearly budget goes toward getting you from point A to point B. For costs such as gas, insurance and tax, it’s pretty easy to get a yearly estimate. For lumpier costs, such as the cost of the car itself, divide the cost over the number of years you keep the car. Do the same with maintenance: try to think of the four or five biggest repairs throughout the life of your car. Add them up and divide them by how long you keep your car. Now add all your figures up to find out how much you spend each year. Lastly, add 10% as a built in fudge-factor (I’d rather overestimate and be pleasantly surprised).
Knowing your yearly car costs can help you make big picture changes. You might do the math and find that keeping a car seven years instead of five can save you several hundred dollars per year. What about keeping a car for ten years? Or buying a car for a few thousand dollars less? Now you can see directly what this would save you.
Cost Per Mile Driven
A year is so long. Most of think of a car as something to use for a single trip. So how much does that trip cost us? One way to find out is to use the IRS reimbursement rate. The IRS currently calculates the operating cost of an automobile at 57.5 cents per mile. According to the IRS website, this includes “depreciation, insurance, repair, tires, maintenance, gas and oil”. Because it’s a one-size-fits-all number, it’s wildly inaccurate for most people. So adjust the number based on the cost and gas mileage of the car. Did you buy a used Honda Fit that gets 40 MPG? You can knock your cost down to 30 cents per mile. Do you have a 60-month loan on a Ford Excursion (19 MPG city)? You can estimate 65 cents per mile.
Knowing your cost per mile enables a smaller kind of behavioral change - the car equivalent of flipping the lights off before you leave the house. If your car costs 50 cents per mile, you know that a ten-mile drive will cost you roughly $5. That drive two towns over to splurge on the best ice cream in the state doesn’t cost $12; it’ll cost $20 after car costs.
Once you start thinking this way, you’ll be amazed you ever hopped in the car without running a cost/benefit analysis. It amazes me that for years, I drove as if driving were free, just because tallying up the cost made my head hurt. At best, I considered the cost of gas as the sole price to worry about. Now I know better. My drive to work is eighteen miles each way, or $18 per day with a middle of the road estimate. Just knowing this is a huge incentive to try to wake up early and take the bus ($3 per day - which is a whole other article).
There are also websites that can help you understand your car costs:
- This Consumer Reports article has a ton of information about the nitty-gritty details of car ownership.
- This DOE website helps you determine cumulative ownership costs (warning – some of these numbers can get depressing!)
Each of these does what any good transparent price does: provides illuminating data that allows you to be a more conscious consumer.
Note again that none of these numbers are precise. It’s more important to have relatively good numbers in your head. Precise numbers are nearly impossible to determine, leading to analysis paralysis. You’ll never take action.
Maybe you’re already someone surfing way out on the edge of financial optimization, and you can’t save another dollar on your economical car (I don’t believe you, but I’ll play along). Still, knowing your car costs can still help in allocating savings. So often people build up a small emergency fund only to find it suddenly wiped out by an unexpected car cost. But this is exactly wrong, because there is nothing more expected than the occasional car repair. Up front, automatic savings can change car repair from a demoralizing savings-destroyer to just another expected expense, like milk or orange juice.
The next time someone asks how much your car costs, instead of quoting the sticker price, ask them, “do you mean per year? Or per mile?” Either way, you’ll have an answer.