Financial Self Help Blog

Do You Know How Much it Costs to Drive a Car?

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Filed under: Personal Finance - Saving Money.

Most of us are on a tight budget and need to be very careful about how we spend our money. Using coupons, taking advantage of “Buy One Get One Free” offers at the grocery store, or waiting for an item to go on sale, are all perfectly acceptable ways to try to save a little money. Saving a few dollars on groceries or getting a new pair of shoes for half price is great, but if you really want to save some serious money, take a look at what you are paying to own the car you drive.

According to the Research and Innovative Technology Administration (RITA) Bureau of Transportation Statistics, there were 11,580,000 new passenger car and light truck sales in 2010. Every day, thousands of people walk into a new car dealership, find the car of their dreams and sign an agreement to finance the vehicle for the next 4 years. What will that car really cost you each month for the next 48 months until the car is paid off?

COST OF OWNERSHIP

You walk into the Dealer and negotiate 100% financing. Including tax, tag, and other associated costs, you agree to finance a total of $20,000. The terms are 4% interest for 48 months. You drive the car an average of 12,000 miles per year and your vehicle gets 20 mpg on a good day.

Following is an estimate of the average monthly cost of ownership.

Monthly Car Payment …………………… $450
Car Insurance ……………………………. $100
Gasoline …………………………………….$150
Maintenance and Repairs ……………….. $50

Total Average Monthly Expenses ………$750

For the chance to drive a new car for the next 4 years, you will pay approximately $36,000 ($750 x 48 mo.). At the end of 4 years, accounting for depreciation, the vehicle will be worth roughly $10,000. Thus, it actually cost you $26,000 or about $540 per month to drive the vehicle 48,000 miles. Stated another way, you are paying roughly .54 for every mile you drive.

5 TIPS TO SAVE MONEY ON TRANSPORTATION COSTS

1. Buy a used car for cash and avoid paying finance charges.

2. Buy a used car and you will not take as big a hit on depreciation

3. Consider taking public transportation at least some of the time.

4. Consolidate your trips. Do all of your chores once or twice a week. Don’t drive unless you must.

5. Move closer to your job. Move to the city and get rid of your car altogether. Taking a cab once in a while is cheaper than owning and maintaining your own car.

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