About 4 years ago, Elisa purchased her first (and so far only) car. I thought it would be interesting to look at how much this car has cost us and see how it compares to what the average American spends on his/her vehicle. At the time, we were not thinking about financial independence. In fact, we didn’t even know what it meant.
We just wanted to make a responsible decision, so we looked at the things we were hoping to get out of the car:
- Safe and reliable transportation
- Efficiency and low maintenance
That’s it. In my opinion, that’s all a car needs to be. Here are some of the things we did not want:
- A status symbol
- A toy
- A gas guzzling machine
- A car payment
- A high maintenance car
With those things in mind we set out to do some research and crunch some numbers. A few weeks later, we purchased a 2007 Kia Spectra for $5,600 from a small used car dealership. At the time of purchase, the car had about 80,000 miles on it, today it has close to 120,000.
We have now driven about 40,000 in this great vehicle. It has taken us to places like New York City, Miami, and everything in between. It has been reliable, low maintenance, and a solid car all around. Here is a summary of how much it has cost us over the past 4 years.
Depreciation: calculated as $5,600 purchase price – $2,900 current estimated value (using Kelly Blue Book). DEPRECIATION IS USUALLY THE BIGGEST EXPENSE OF PURCHASING A NEW CAR. For example, assume Elisa would have bought a brand new sedan back in 2012 for $20,000. Today, it would be worth around $12,000. The depreciation alone would have been $8,000! Almost the same as our ENTIRE cost of ownership for the Spectra.
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 4 years) and $1,999 due at signing . The depreciation cost in this case would be $10,110! And remember, you are still responsible for gas, insurance, registration and taxes, maintenance, etc. Just thinking about it makes my head hurt a little.
Repairs and maintenance: so far we have spent $330 for oil changes ($25 each) + $190 for 2 new tires + $183 for brake pads and rotors for 2 tires + $6 to buy a head light-bulb (DIY installation). 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 dealership, which will charge you much more than a local honest mechanic. I have heard of dealerships charging around $70 for a simple oil change!
Gas: I used average prices for the past four years and allocated 10,000 miles to each year, since I don’t have exact mileage logs. I do have MPG logs and so far we have averaged about 31 MPG. The table below summarizes the results.
Gas is likely to be about the same for a brand new car so no big difference here.
Insurance: on average we have paid around $50 per month for two cars. Since we are looking at Elisa’s car only, I cut that in half to $25 per month and multiplied it by 48 months for a total of $1,200. This is liability only insurance through GEICO.
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 likely to be about the same for a brand new sedan so no big difference here. However, property taxes are assessed based on the value of the car. So a more expensive car will cost you more in taxes.
How does our 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 4 years will cost you$34,800! This is more than 4 times the cost of ownership of our Kia Spectra. In other words, our choice of vehicle has saved us about $26,200 so far compared to the average cost of car ownership in the U.S. All we had to do was a little planning upfront.
“You should never even spend all your money on a car, let alone more than all your money.” – Mr. Money Mustache
Related reading: Cars Part 2 – How We Saved Another $32,400
P.S. We’d love to hear your comments on money and cars 🙂
Nice write up for sure. Couple of things to note:
1. There is an app for iOS called Gas Tracker or Fuely that allows you to track all of your gas fill ups and it will automatically calculate a bunch of stuff for you. I love it.
2. An oil change for a BMW is around $200, lol. So $70 is really not enough. Plus high end cars like that, charge about $90/hour on repairs.
Nice write up and signed up for the next one!
Thanks Thomas! Glad you enjoyed the post. I’ll check out the app.
$200 for an oil change!!?? Good lord… My mom had a Volkswagen and that thing was a money pit. I imagine a bmw would be similar or worse 🙂
Great post FC. Found your blog through a comment you made on MadFIentist.
I got a Toyota Tundra about 8 years ago. Didn’t realize it was a terrible financial decision until it needed new tires. I ended up paying $800! Shortly after that I stumbled across the Mr. Money Mustache blog, sold my truck, started taking care of my finances and my health, and have never been happier!
Thank you, Robert! I actually got into the world of Financial Independence through MMM as well. Glad to hear you were able to turn things around for the better. Inspiring people to do just that is part of the reason I started this blog. Cheers!
Never thought about it this way, but you’re absolutely right. Depreciation has cost me over $14,000 in the last 5 years. I guess it slipped my mind because of the fact that depreciation isn’t cash — but a deferred loss. That being said, I finally finished paying for the car in March, so the worst of my mistake is probably past.
Thank you for the comment Wilson. Depreciation is indeed a real expense, and one that can slip one’s mind easily.
The good news is now you are older and wiser. I don’t think my first car purchase was as good financially as Elisa’s (was younger and more foolish at the time).
I will be crunching the numbers and will write about it soon.