Cars Part 2 – How We Saved Another $32,400

About a year ago I wrote about how Elisa’s car has saved us $26,200 over 4 years. Today, we’ll explore the numbers behind my own car. As I am writing this sentence, I have not yet run the numbers so I am excited to see how my car’s cost of ownership compares to Elisa’s.

I bought this car back in 2011 when I moved to Greensboro, NC for graduate school. I had about $6,000 to my name, and even though I didn’t know about financial independence back then, I knew that borrowing money for a car was a bad idea. I still needed to eat and pay bills so my total budget for this purchase was about $4,500. With that in mind I started a Craigslist search for my first ride. I looked at hundreds of vehicles, test drove a handful and at the end there were two final contenders. One was selling for $6,700 and the other for $2,750. The $6,700 Chevy Cobalt was outside my budget. My parents offered to help me buy it if that was the one I really wanted it. At 21 years of age, I felt I was too old to be asking my parents for car money, so I bought a 2000 Hyundai Tiburon for $2,750.

 

When I bought my car in 2011, it had 87,000 miles. Five years later, it has 132,000. I have driven it down to the Florida Keys and all the way up to Milwaukee in Wisconsin. It has been fairly reliable, fun to drive, and in my mind, an absolute bargain for $2,750. Though, we won’t know that for sure until we run the numbers. Here is a summary of how much my car has cost us over the past 5 years.

Cost over 5 years Total Annual Monthly
Depreciation $1,550 $310 $26
Repairs and maintenance $2,719 $544 $45
Gas $4,997 $999 $83
Insurance $1,500 $300 $25
Registration and taxes $315 $63 $5
Total $11,081 $2,216 $185

Depreciation: calculated as follows: $2,750 purchase price minus $1,200 current estimated value (using Kelly Blue Book). DEPRECIATION IS USUALLY THE BIGGEST EXPENSE OF PURCHASING A NEW CAR. For example, assume I would have bought a brand new car back in 2011 for $20,000. Today, it would be worth around $9,000. The depreciation alone would have been $11,000! Almost the same as my ENTIRE cost of ownership for the Tiburon.

Similarly, when you lease a car, the money due at signing and monthly payments go towards covering the car’s depreciation as well as the leasing company’s profit. For example, let’s say you lease a mid-size sedan for $169 per month (for 5 years) and $1,999 due at signing . The depreciation cost in this case would be $12,139! And remember, you are still responsible for gas, insurance, registration and taxes, maintenance, etc. Hopefully, you can appreciate how ridiculously expensive brand new cars are, and can use this knowledge to help yourself build some serious wealth.

Repairs and maintenance: as a 17-year old car, the Tiburon has visited the mechanic more often than Elisa’s car. Here is a summary of all the repairs and maintenance for the Tiburon since I bought it 5 years ago.

Repairs and maintenance Total Cost Comments
Oil changes $375 Every 3,000 miles, $25 each
Brakes $340 Several brake pads and rotors
Tires $410 Only 1 set of tires so far, had good tires when I bought it. Includes repairing flat tires
Wheel bearing $400 Needed to be replaced soon after I bought it
Timing belt and water pump $410 I replaced them soon after I bought the car as a preventive measure
Battery $100 The battery it came with died in early 2014
Windshield wipers $18 Routine maintenance. DIY installation
Front and rear light bulbs $19 Routine maintenance. DIY installation
Tail light assembly $47 Somebody broke one of my taillights in a parking lot and didn’t even leave a note 🙁
Alternator $185 It died in 2015, one of 2 times I have had it towed to the mechanic
Clutch master cylinder $225 It died in 2015, one of 2 times I have had it towed to the mechanic
Spark Plugs $190 Recommended maintenance
Total $2,719

I have to admit, the total repairs and maintenance bill for the Tiburon is higher than I would have guessed. Elisa’s car kicks the Tiburon’s ass in this expense category. I suppose it makes sense since the Tiburon is an older car. Also, I had more limited resources back when I bought this car, both in terms of money and knowledge. You may think that a brand new car requires less maintenance and therefore is less expensive. Perhaps you will visit the mechanic less often. However, each visit is likely to be significantly more expensive since you will probably be required to take the car to the stealership, which will charge you much more than a local honest mechanic. I have heard of dealerships charging around $70 for a simple oil change, and more than $300 for simply replacing a couple of brake pads!

Gas: I used average prices for the past four years and allocated 9,000 miles to each year, since I don’t have exact mileage logs. I do have MPG logs and so far I have averaged about 29 MPG, which is slightly less than Elisa’s car. The table below summarizes the results.

Year Gas Price Miles Gallons Needed Total Gas Cost
Year 1 $3.55             9,000 310.34 $1,101.72
Year 2 $3.60             9,000 310.34 $1,117.24
Year 3 $3.55             9,000 310.34 $1,101.72
Year 4 $3.10             9,000 310.34 $962.07
Year 5 $2.30             9,000 310.34 $713.79
Total $4,996.55

Gas used to be more expensive a few years ago and I used to drive a lot more. Mainly because grad school was about 30 miles from home each way. Now that gas has been close to $2 per gallon for a while and I live only 5 miles from work, my monthly gas expense is more in the $20 to $30 range. Less driving should also result in less maintenance so I look forward to keeping car costs even lower going forward.

Insurance: on average we have paid around $50 per month for two cars. Since we are looking at my car only, I cut that in half to $25 per month. This is liability insurance only. We don’t carry comprehensive insurance on our vehicles since we could easily replace them if needed. Inexpensive cars and a high savings rate give us the opportunity to be our own insurance company and keep all the profits in house.

If you don’t pay cash for your car, your lender or lessor will probably require you to purchase comprehensive insurance which will be significantly more than $25 per month.

Registration and taxes: registration fees are virtually the same for my car and the wife’s. However, property taxes are assessed based on the value of the car, so mine has been a little cheaper here. Yet another advantage of an inexpensive car 🙂

How does my cost of car ownership compare to the average American?

Search “average cost of owning a car” on Google, check some of the results and you will see that it stands at about $8,700 per year ($725 per month). At this rate, owning a car for 5 years will cost you $43,500! This is about 4 times the cost of ownership of my Hyundai Tiburon. In other words, our choice of vehicle has saved us about $32,400 so far compared to the average American. If you already fell into the expensive car money pit, it’s OK. The past is the past, don’t beat yourself up too much. But now that you have read this, no excuses going forward.

How does my cost of car ownership compare to my wife’s?

Hyundai Tiburon (me) Kia Spectra (my better half)
Annual cost Monthly cost Annual cost Monthly cost
Depreciation                310                      26                675                      56
Repairs and maintenance                544                      45                177                      15
Gas                999                      83                918                      77
Insurance                300                      25                300                      25
Registration and taxes                   63                        5                   80                        7
Total             2,216                   185             2,150                   179
Cost per mile  $                                   0.2462  $                                   0.2151

As you can see from the table above, Elisa’s car has been a little cheaper than mine overall. The two most interesting things here are depreciation, and repairs and maintenance. It makes sense that my car would depreciate less since when it had a lower purchase price and most of the depreciation had already occurred when I bought it. The flip side of that is repairs and maintenance. Elisa’s car has been extremely reliable, and it makes sense for an older car to need more visits to the mechanic. I also learned a thing or two about cars from purchasing and owning my car, so that probably helped me make a better decision when we bought the Spectra.

How to buy a solid used car

Based on what I have learned so far, this is what I plan on doing when looking for my next car.

Do your homework: research reliability ratings and owner reviews of models you are interested in. We used to think Kia was a low quality brand, but after doing a bunch of research we found this was not the case for the 2007-2009 Sprectra. We have not been disappointed! Keep in mind a 5-8 year old car is probably going to hit the sweet spot for optimizing depreciation and maintenance.

Take your time: buying a car is a fairly big purchase, don’t rush it. Start searching on Craigslist a month or two before you need to buy your car. This will allow you to get a feel for the local market and be more confident when the time to move comes. For example, I have learned which local dealers tend to offer better value. I have also seen a couple of private party sales where the ad says something like this: “I’m moving out of town, need to sell ASAP”. This can be golden opportunities as these sellers will often offer better prices and be more willing to negotiate. Last but not least, a quick word of caution on Craigslist: look out for scammers. Some major red flags include prices that are too good to be true, and sellers from out of town who ask you send them money before you can even see the car. If you are buying from a dealer, they will usually have websites outside of Craigslist, and you can look them up online, check reviews from customers, etc.

Look at the CarFax, Autocheck, or similar report: most used car dealerships provide these reports online for free nowadays (private sellers may provide them too). Here you are looking to eliminate cars that have been on serious accidents, floods, etc. I also tend to avoid cars that have previously been owned/driven up north since the constant salting of roads can lead to cars rusting faster than non-salty counterparts. Last but not least, car reports can provide valuable insight into a vehicle’s maintenance history (or lack thereof).

Test drive and get an inspection: test driving a car can uncover potential problems. I like many of tips included on this list. Depending on your risk tolerance and what you are able to learn during the test drive, it may be a good idea to take the car you are trying to buy for a pre-purchase inspection. Many auto shops will offer this services for $25 to $100 depending on how in-depth the inspection is.

Negotiate: with all the knowledge you have gained from doing all of the above, you will be on solid grounds to negotiate. Not only because you want a lower price (the seller doesn’t care about what you want), but because you are confident what the car is worth. For example, I was able to reduce the initial asking price of the Tiburon by $250 because the pre-purchase inspection uncovered that the car was going to need new brake pads right away.

Closing Thoughts

Before you even ask how to optimize your car expenses, ask yourself if a car is needed at all. Is there a good public transportation system where you live? Is your city/town bike friendly? We are currently deciding if it would make sense for us to become a one car family. Elisa lives less than 2 miles from her office so she bikes to work very often. For days when it rains or we happen to need two cars at the same time for any other reason, we could use Uber or Lyft. As long as we spend less than $2,000 in Uber/Lyft per year, it would make sense financially to be a one car family. I will be writing about it if we decide to go that route 🙂

If you decide you must have a car, use the knowledge and the tools you now have to come tens of thousands of dollars ahead of the average American. When people ask how my wife and I have amassed a six-figure nest egg while most people live paycheck to paycheck, I can confidently say our car choices are responsible for about $58,600 of the total. And remember, this is just over a 5-year period, the amount over a life time is in the millions of dollars when you account for the compounding returns of investing those savings.

 

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4 thoughts on “Cars Part 2 – How We Saved Another $32,400

    • That’s awesome! We are seriously thinking about it.
      Do you have any kids? What do you do when you need more than one car at the same time? Appreciate any other info you can share 🙂

  1. I’m currently in a one-car arrangement as well, though as someone who lives in a city with decent public transport, there could be a case for not owning one at all. I don’t miss paying for gas, especially since it’s a bit more expensive up here.

    Hope y’all are doing well.

    • Hey Wilson!
      Yeah, good public transportation is definitely a good incentive to not own two cars (or any). One thing I maybe didn’t emphasize enough on the article is although our cost of ownership year per car has been about $2,200, this figure is a yearly average for a time period where gas prices were higher and we drove more. So a better number for our analysis would be one where we account for these two things. One that would be easy to forecast is the cost of gas. Another effect of driving fewer miles per year is lower repairs and maintenance, though these two would be a little harder to predict accurately. Maybe this analysis is worth its own entire post 🙂

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