What's the Real Cost of Your Vehicle?
George Boelcke FCI
July 09, 2009
Last week, I bought a new car. No, it isn´t new, new. It is a 13-year old Buick, but with 96,000 miles, it´s a major upgrade from my Chrysler, which I retired after 185,000 miles.
Anyone who has ever read the vehicle chapter in the It´s Your Money book knows that I am not likely to buy a brand new model. No matter what the incentives, there is no chance I want to pay for the average 20 to 30% depreciation in the first year. And low-rate financing doesn´t interest me, because adding interest costs to a car makes things worse, and more costly. Even at zero percent financing, I would be giving up the alternative of a rebate, and would now have monthly payments. That isn´t going to happen, because a car payment is the biggest monthly cash flow robber, and I would always be financing something that is worth less and less each month.
For anyone who does want to consider a new vehicle, www.edmunds.com has a great calculator which estimates the true cost of ownership over the first five years. They include gas, depreciation, insurance, and a host of other factors. Before heading for the dealership, it´s well worth a trip to their site, if only for the comparisons between models. (And you should probably also read this story on dissecting a car ad: http://www.americanchronicle.com/articles/view/27834)
In my case, since new wasn´t really new, I was happy to just write a cheque for $2,400 for my Buick. I´ll let you know in a couple of years what it´s actually costing me.
What I did want to figure out, without attempting to be smarter than a fifth grader, or doing more than a few minutes of math, is the real cost to drive my old Chrysler. In my case, the car cost me $133 a month. That´s an amount I can live with, even though my brother is quite a bit better off than me, at less than $71, with his old Olds Achieva!
If you believe that a vehicle is a status symbol, you are likely destined to be broke. If, however, you think of a vehicle as basic, reliable transportation, you will likely be way ahead of millions of people, financially.
First, however, you need to know what your current vehicle is costing you per month, or per mile. You can easily calculate your cost below, and do send me a note if you can beat my figure, which is used as an example on the worksheet. And remember three other points which will help you to avoid making your vehicle into a money pit:
Avoid having a finance payment on your vehicle at all costs.
If you have one, keep the vehicle after it is paid off and re-direct the same payments to a savings account. You won´t miss the money – you´ve been paying it all these years. But now it´ll grow for you, instead of going away.
If you are in a lease – get out. There is very little chance you will ever have any equity and all those payments are just treading water before you´ll likely be giving the vehicle back to the dealer. (See: Leasing or financing your next vehicle? http://www.americanchronicle.com/articles/view/32062)
Vehicle Cost to Drive:
Original cash price of
the vehicle: $10,200 $__________
Or:
The total of all payments:
(add up all the monthly payments,
because this will include the
interest you paid to finance the
vehicle) n/a $__________
Or:
On a lease, add the monthly
payment with taxes AND the
end of lease buyout amount n/a $__________
Add the rough total of any
repair bills: $ 3,600 $__________
Do not include insurance, gas,
basic maintenance, such
as oil changes, tires, etc.
Yes, they have to be paid,
but they won´t be too different
between vehicles.
Subtract the current value of the
vehicle, or the actual sale price: $ 2,300 $__________
Equals the total cost to own: $11,500 $__________
Number of months you owned
the vehicle: 86 months __________
Total miles you have driven:
(That is the mileage right now,
less the mileage when you
purchased the vehicle) 128,000 __________
Your cost per mile: 11 c/mile __________
(Divided the total mileage you´ve
driven by the total cost to own)
Your cost per month: $133 $__________
(Divide the total cost to own by the
number of months you´ve owned it)
Anyone who has ever read the vehicle chapter in the It´s Your Money book knows that I am not likely to buy a brand new model. No matter what the incentives, there is no chance I want to pay for the average 20 to 30% depreciation in the first year. And low-rate financing doesn´t interest me, because adding interest costs to a car makes things worse, and more costly. Even at zero percent financing, I would be giving up the alternative of a rebate, and would now have monthly payments. That isn´t going to happen, because a car payment is the biggest monthly cash flow robber, and I would always be financing something that is worth less and less each month.
For anyone who does want to consider a new vehicle, www.edmunds.com has a great calculator which estimates the true cost of ownership over the first five years. They include gas, depreciation, insurance, and a host of other factors. Before heading for the dealership, it´s well worth a trip to their site, if only for the comparisons between models. (And you should probably also read this story on dissecting a car ad: http://www.americanchronicle.com/articles/view/27834)
In my case, since new wasn´t really new, I was happy to just write a cheque for $2,400 for my Buick. I´ll let you know in a couple of years what it´s actually costing me.
What I did want to figure out, without attempting to be smarter than a fifth grader, or doing more than a few minutes of math, is the real cost to drive my old Chrysler. In my case, the car cost me $133 a month. That´s an amount I can live with, even though my brother is quite a bit better off than me, at less than $71, with his old Olds Achieva!
If you believe that a vehicle is a status symbol, you are likely destined to be broke. If, however, you think of a vehicle as basic, reliable transportation, you will likely be way ahead of millions of people, financially.
First, however, you need to know what your current vehicle is costing you per month, or per mile. You can easily calculate your cost below, and do send me a note if you can beat my figure, which is used as an example on the worksheet. And remember three other points which will help you to avoid making your vehicle into a money pit:
Avoid having a finance payment on your vehicle at all costs.
If you have one, keep the vehicle after it is paid off and re-direct the same payments to a savings account. You won´t miss the money – you´ve been paying it all these years. But now it´ll grow for you, instead of going away.
If you are in a lease – get out. There is very little chance you will ever have any equity and all those payments are just treading water before you´ll likely be giving the vehicle back to the dealer. (See: Leasing or financing your next vehicle? http://www.americanchronicle.com/articles/view/32062)
Vehicle Cost to Drive:
Original cash price of
the vehicle: $10,200 $__________
Or:
The total of all payments:
(add up all the monthly payments,
because this will include the
interest you paid to finance the
vehicle) n/a $__________
Or:
On a lease, add the monthly
payment with taxes AND the
end of lease buyout amount n/a $__________
Add the rough total of any
repair bills: $ 3,600 $__________
Do not include insurance, gas,
basic maintenance, such
as oil changes, tires, etc.
Yes, they have to be paid,
but they won´t be too different
between vehicles.
Subtract the current value of the
vehicle, or the actual sale price: $ 2,300 $__________
Equals the total cost to own: $11,500 $__________
Number of months you owned
the vehicle: 86 months __________
Total miles you have driven:
(That is the mileage right now,
less the mileage when you
purchased the vehicle) 128,000 __________
Your cost per mile: 11 c/mile __________
(Divided the total mileage you´ve
driven by the total cost to own)
Your cost per month: $133 $__________
(Divide the total cost to own by the
number of months you´ve owned it)
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