Real Cost Of Owning A Car Calculator & Tips on How to Reduce It

According to an article in Business Insider, the cost of owning a car is quite high. Drivers today spend close to $35,000 on a new car, yet use it only 4 percent of the time. Considering the full costs of car ownership and operation, they came to the conclusion that one fourth of drivers would benefit by ditching their car in favor of using ride sharing apps or public transportation. Our own U.S. Bureau of Labor Statistics states that it costs the average American around $9,576 per year to own and operate a vehicle. Considering the above factors, it stands to reason that before you get thrilled with the idea of driving down the thoroughfare in your new car, with the top down, and wind streaming through your hair, it may be a good idea to slow up a bit, take stock, and consider the matter more fully.

Are We Enslaving Ourselves Unnecessarily?

Is our car an asset to our lifestyle, or our slave owner? Indeed, when you consider how many hours of your life you spend working just to afford a car in the first place, one could consider that many of us have become enslaved by this ‘asset’. We work hard to feed it, give it shelter, maintain it, repair it, and wash, wax and polish it. As such, it can be argued that this motorized hunk of metal, governs much of our life instead of the other way around.

Since many of us need a vehicle of some sort to survive, it’s critical to examine the issue of auto expenditure in an honest and forthright manner, so you become less of a slave, and more of an owner. To assist you in making your final decision when purchasing your car, we’ve come up with some common frequently asked questions, along with answers. Keep in mind that as with most things, the numerical data listed here will vary with your personal vehicle choices. For instance, mileage offered to you via a pickup truck, or SUV will be much different than that of a fuel efficient sedan.

 

Real Cost Of Owning A Car


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Real Cost Of Owning A Car – FAQ


Is a Car an Investment?

A car is never to be considered a profitable investment in and of itself as it declines in value the moment you drive it off the showroom floor. Perhaps it may help if you were to consider your car as a tool which performs certain functions, and when that tool breaks, you toss it away, and purchase another. This is why those knowledgeable in the field of car ownership encourage new car buyers to consider the total cost of buying a car, and not just the sticker price. The total cost of purchasing a car includes:

  • Interest on Financing
  • Depreciation
  • State taxes and fees
  • Insurance premiums
  • Gasoline
  • Regular maintenance costs
  • Repairs
  • Parking expenses
  • Possible tickets


What is the 5 Year Cost to Own

To help give you a sound idea of just what it costs to own and operate a car, Kelley has come up with a “5 Year Cost to Own’ method of calculating expenses. The Kelley Blue Book, is one of the top resources on the internet today, with regards to cost of owning and operating a vehicle. Their formula for determining the 5 year cost to own value is as follows:

Out of Pocket Expense + Loss in Value = 5 Year Cost to Own

Out of Pocket Expense includes, fuel, insurance, financing, state fees, maintenance and repairs. Loss of value refers to your cars depreciation, which is the difference between the purchase price and vehicle worth in 5 years. While Kelley does not list it as a consideration, we believe you should add in the expense of public parking in their calculations. According to Parkopedia.com, simply parking your vehicle for one day in New York averages $41.58. Also, it’s a good idea to also include any unexpected expense regarding parking violations.

So if you purchased a brand new, 2018 Dodge Challenger SXT at $25,910 the Kelley Blue Book break down is as follows:

  • Fuel – $10,084
  • Insurance – $8,505
  • Financing – $2,055
  • State Fees – $5,949
  • Maintenance – $2,364
  • Repairs – $2,082

Out of Pocket Expenses = $31,039

Out of Pocket Expenses + Loss of Value (depreciation) = 5 Year Cost to Own

$31,039 + $16,922 = $47,961

This means that your one time purchase of a brand new, Dodge Challenger SXT at $25,910 will actually end up costing you approximately $47,961 in five years time.


Van Living: So... What's it all about?

This is the one exception to the rule. Now a days, more and more smart, young people are ditching their high apartment rents by living in their vans or purchasing a truck camper. These vans are completely tricked out, to create a cozy, cost efficient living space. Power is usually supplied by leisure generators, or solar power sources, which can usually handle the power needs of modern day appliances and entertainment. According to Business Insider, the average individual can save from several hundred to several thousands in monthly expenses by living in a van. Brandon, a Google employee saves up to 90 percent of his take home pay, by living in his revamped truck.

As you can see, purchasing a van to live in can be seen as the exception to the rule, as it actually serves to lower your entire, overall cost of living. For instance, if your rent is currently $1,200 per month, compare that to a $600 per month van payment. You’ll also be saving on utilities as well. The true cost of living in a van varies. Many Walmart’s offer free, overnight parking in their lots. This is totally beneficial to both parties, as you’ll be purchasing your goods and food from their establishment.

What you’ll save depends on your personal choices. Some people spend tens of thousands on a professionally, tricked out van, while others go the cost effective route, and purchase refrigerators, and other supplies from camping supply stores. In fact, you can purchase a nice sized, privacy shower tent online for as little as $20.00 online. These pop up shower tents allow you to take showers, change clothes and even use the rest room.

To help give you an idea of the savings, we’ve included a few necessary items to add to your Van. These prices are subject to change at any time, but give you a sound idea:

As you can see, the above necessities combined will cost you under $500.00, so it’s quite possible to trick out your van in a very cost effective way. In today’s high priced world, choosing to purchase a vehicle to live in, in order to save up a nice, nest egg, is on the rise because it is a solid and sound solution, and yes can be thought of as an investment as it will net you a return in the form of life savings, which you can then take and invest in a Vanguard STAR fund.


Is it More Cost Effective to Lease or Buy??

To lease or to buy, that is the question. When it comes to the cost of owning a car, some consider leasing preferable. If you’d like to own a vehicle for say, the next 10 years, and be free from car payments, then of course, buying would suite you. However, if you like the idea of exchanging vehicles every few years, along with lower monthly payments? Then leasing might be for you.

Benefits of Buying a Car The first benefit, is that of eventual ownership. Once you’re done making the payments, the care is yours. In general your insurance premiums will be lower than if you leased, and are able to do whatever you’d like with your vehicle, as opposed to a leased car. However, while it’s true that your insurance will be lower, your monthly car payments will be higher. You’ll also have to consider the down payment amount they’ll require.

Benefits of Leasing a Car The main reason people prefer to lease over purchasing a vehicle involves cost. When you lease, not only are your monthly payments much lower, but no down payment is involved, or no state sales tax. Depending on the firm you do business with, you’ll be renting that car for a specific time period, say 3 or 4 years. Some leasing agreements may also allow you to count your monthly payments toward the eventual purchase of that vehicle. Also, if you intend to use a leased vehicle for your business purposes, you can claim in on your income tax.

Look before you leap here, and read the fine print. If your lease has a mileage restriction, you’ll be held to a limit of miles during a given time period. If you go over that limit, you’ll end up being charged extra per mile. Keep a look out for any additional fees involving wear and tear on the vehicle as well. Remember, the leasing company will make the final determination of what ‘wear and tear’ refers to, so tread carefully here


What is Vehicle Depreciation?

Unfortunately cars are not considered fine antiques as they age. In fact, the opposite is true. The older your vehicle, the less valuable it is on the marketplace. Depreciation is unique for each vehicle, but the rule of thumb is that newly purchased cars depreciate 23.5 percent from the manufacturer’s suggested retail price (MSRP), after the first year, and around 60 percent in following years. Therefore, unless you plan on making a living in the gig economy as an Uber driver, or purchase a van to lower your overall living expenses, a car is anything but an investment,


I'm a New Car Buyer. What is the Common Terminology Used in the Transaction Process?

Becoming familiar with the common terms used during the transaction process makes you a smart consumer when it comes to finalizing the deal. You’re able to make educated inquiries, and have a sound discussion with your dealer before you sign on the dotted line.

  • Acquisition Fees: Leasing companies charge these fees to cover their cost of processing the lease. These fees are not open to debate.
  • Down Payment: This is the amount required to secure the purchase.
  • Invoice Price: This is the cost the car maker has charged the dealer.
  • Drive-Off Fee: It is what is says. It’s the price you pay your car dealership to drive off the lot. This fee will include your first month payment, acquisition fee, taxes
  • MSRP: This is known as the Manufacturer’s Suggested Retail Price, or the sticker price. The car maker, such as Dodge or Chevy, will suggest a price for the vehicle. It’s possible that you may be able to haggle the price down at certain dealerships, especially if the car is not in demand.
  • Market Value: Whatever other car owners have paid for this vehicle in your area, is its market value.

Money Factor: If you’re leasing a car, this term refers to an interest rate. You can transform the money factor to an APR, by taking the money factor and multiplying it by 2400.


What Steps Do I Take to Buy a Car at the Best Possible Cost?

To help reduce your overall, total cost of owning and operating a car, it’s crucial that you go slow, and methodically consider every option open to you. Purchasing or leasing a vehicle should never be done on impulse.

What Are Your Needs? Be honest here. A little honesty can save you a whole lotta bucks down the road. That stunning, large, SUV in cherry-apple red might be beckoning you, but pull back on the reins a bit. Ask yourself a few questions first:

  • Will you be hauling anything?
  • Do you require a strong engine for towing?
  • How many people are in your family?
  • How much interior space do you need?
  • How many miles will you travel during the day?
  • Can a Used Car suffice?

In other words, take some time to rip out a piece of paper, and jot down the reasons you’ll need a car. Take those notes with you when begin to shop for your vehicle. Once you find the car that meets your criteria, then see if you can pare down the options you really don’t need. This is important, as the salesperson may attempt to get you to purchase unnecessary add-ons.

Do Some Research Once you have your criteria straight, it’s time to look for the perfect vehicle. Online guides that can help you include:

Get the Best Deal in Town Who has the better deal, Ford or Chevy? Check out what your local dealerships are involved in when it comes to getting customers through their doors. This include rebates, buyer incentives, financing deals.

Start Shopping Now it’s time to start shopping the dealerships. Visit different showrooms, and start collecting quotes. If you’re purchasing a vehicle from ebay or classifieds, you’ll need to know it’s True Market Value, so you know you won’t get ripped off. You can get the True Market Value from sites such as NADA, Edmunds or Kelley Blue Book.

No Impulse Buying No matter how cute that car is, you must do your research and give it an old-fashioned test drive. In today’s digital world, you have the option to also look up reviews on various sites, view consumer reports, visit auto forums and make inquiries, and do a search on how easy they are to maintain and repair. We strongly recommend that before you decide on a model, to use the Consumer Reports “Car Reliability Reports“, which are detailed reports on vehicles from 2009 to 2018.

Take a Used Car to a Mechanic for Inspection If you’re purchasing a used vehicle, the seller should have no problem with your desire to have a professional mechanic inspect it beforehand. If the seller objects, then of course that should be a red flag. Remember to use your own mechanic, and not the one supplied by the dealership to make the final determination.

Publications to Help You Get the Best Deal


What is a Car Buying Service?

A car buyer service is a road you can take if you’re concerned that you will not get the best deal for yourself. Those who work for car buying services make a living by ensuring you do not get talked into purchasing a vehicle which would not fit in your lifestyle, while preventing the salesperson from pressuring you into non-essential add-ons. They are also familiar with contracts and leasing agreements, and will be able to understand the fine print. While these professionals do charge for their service, the fact that they can get you the right vehicle for you, at the right price can save you money in the long run.


What's Cheaper, Ride Sharing with Uber or Lyft, or Owning a Car?

According to Mary Meeker’s celebrated, Annual Internet Trends Report, it larger cities such as New York, Washington DC, Los Angeles and Dallas, it is actually less expensive to take an Uber than own a vehicle: “People are buying fewer cars, keeping them longer, and shifting transportation spending to ride share, which saw rides double in 2017.” Commuting by car in New York costs an average of $218, while Uber costs just $142.

While this may be the case, you need to think it through with regards to your personal situation, location, and personal driving habits. For instance, if you need your vehicle to make multiple trips to the store, errands, cart the kids back and forth from school, then purchasing an inexpensive, fuel-efficient car is much less expensive than ride sharing. However, if you only use your car for short commutes, then ride sharing might be less costly in the long run. Also pay attention to your location. If you live out in the sticks, or suburbs, owning an inexpensive vehicle may end up being less expensive.


Can I Use My Vehicle as a Tax Write Off?

According to the IRS, you can. You can write off any expenses only for those times the vehicle is used for business related purposes. As such, it only benefits you to keep a log of when and where you traveled, the reason, and mileage incurred, whenever you use it for your business. You are allowed to write off your mileage for business purposes. Below are some examples of business expense log books:

You may deduct your vehicle for business expenses in one of two ways: Standard mileage rate or actual expenses.


How is Car Insurance Calculated?

Your auto insurance premium is determined by your particular insurer, who in turn, follows state guidelines and regulations. They look at all variables, and then come to a premium which is equivalent to the likelihood that you’ll make an insurance claim, and the probably cost of that claim.

Age

This is usually the first consideration. Drivers under the age of 25 will have much less experience behind the wheel than a driver of 45.

Occupation If your occupation puts you at risk in any way, as determined by your provider, your premium will reflect that.

The Type of Vehicle You Have If you drive a beater, your premium will be much less than if you drove a Mercedes. The reason being that it would cost less to replace or repair your beater, than it would Mercedes.

Engine Power Cars with powerful and fast engines also mean the likelihood of an accident, due to the speed of the vehicle.

Unique Vehicle If you decide to own and drive a car that was used in a television series, for instance, the insurer will see that as a risk. After all, if you own one of the original Love Bugs or Knight Rider cars, the chance of it being a victim of theft increases dramatically.

Location It’s all about the zip code. If you reside in an area which experiences a greater number of road accidents or auto thefts, this will increase your insurance cost.

Security Depending on your policy, your premium may be reduced if you had equipped your car with alarms or other security features. Also, keeping your car parked in a closed, secure garage may net you lower premiums than if you leave it parked on the street.

Drivers History Another reason age matters, is your claim history. The longer you’ve driven your vehicle without incident, the lower your premiums will be. a No Claims Bonus, or NCB is often granted for those who have not made a claim for one year.

Voluntary Excess The more your voluntary Excess, the less your premium


How Can I Save Money on Vehicle Maintenance?

Your first defense against spending extra money on your car, is to develop a regular maintenance routine. Now, don’t run away just yet. You see, you don’t really have to be a mechanic in order to get into a maintenance routine. Just follow some basic steps, and you’ll be good to go.

Keep Maintenance Logs Get into the habit of keeping maintenance logs. These not only keep you up to date, but if something does happen, and you need to visit your local mechanic, you’ll have a full log of what action was performed when. For instance, you’ll have a record for when you last tuned your vehicle, or rotated your tires. Below, we’ve included some maintenance log books:

The Routine Tune-Up Having a properly tuned-up vehicle saves you on fuel consumption. Current estimations state that if you do not tune your car or truck, it will consume 25 to 33 percent more fuel per year, and that equals up to spending an extra $150 to $250 per year.

Change the Oil When you change your oil and oil filter on a regular basis, you are increasing the lifespan of your engine. It is recommended that you change your oil and filter every 3000 miles. When you do this, you are automatically reducing the wear and tear on your engine, which can equal engine repair savings of up to $3000 per year.

Clean That Air Filter Unnecessary wear and tear on your engine, leads to unnecessary repair expenses. It’s estimated that a filthy air filter cuts mileage up to 10 percent, as well as reduces your engines life expectancy. When you clean your air filter you can save over $130 per year.

Tires This subject deserves a book all it’s own. If your tires are not properly inflated, or damaged and worn, they will cost you in mileage, up to $140 or more per year. Next, take your car in and have the tires balanced. If your tires are not balanced properly, your suspension and shock absorbers will suffer, and that could cost you an extra $250 a year in repairs.

Check Your Fluid Levels To save up to $300 or more a year in unnecessary expenses, keep a routine check on your battery water level, coolant, brake, clutch and transmission fluids.

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