Cost of Owning Vehicles

Jun 28 2011

Cost of Owning Vehicles

Posted by Aaron Cruz in Finance Online

As a general rule, wealthy people do not finance cars or much of anything really. Saving money for a car, rather than borrowing and paying interest, reduces the overall cost. Lets start acting wealthy.

To quickly demonstrate, consider the following examples:

$500 saved over 12 months at 1% bank interest will yield $6,032. Purchasing with cash gives the buyer bargaining power and the ability to purchase, say, a $7,500 vehicle for $6,000.
The same $7,500 car financed at 10% over 3 years will cost $242/month and will end up costing upwards of $8,700.

In this crude example we see that saving and delaying the purchase for a year could hypothetically save us $2,700 Its also important to note that buying private party, even if you finance, allows you to retain bargaining power by bringing the lump sum to the transaction.

You get the idea but what about the cost of owning a paid for vehicle?

Setting aside the paying cash vs. financing debate, lets consider how much it costs to own a paid off vehicle. Have you ever ran the numbers to see exactly how much it costs to own your car?

Betsy and I own a car, a Jeep, a motorcycle, and a scooter

Focusing solely on the car and/or Jeep, lets take an elementary look at the numbers:

G + M + I + R = cost/month for your paid for vehicle.

Running the calculation through for our situation reveals that we spend roughly $370/month for each vehicle. Since both the car and Jeep are paid off we see that it cost us approximately $740/month to own both which is roughly $9,000 annually.

If you finance your vehicle you can simply add an [ for financing] to the equation: F + G + M + I + R = cost/month for your financed vehicle. Im sure you wont be terribly excited about the results of the equation I know I wasnt. But it was terribly eye opening.

We were originally saving for 2 replacement vehicles not anymore. While we have no immediate plans to sell either vehicle, we are no longer planning to replace both when they give up the ghost. Instead we will only replace one, which means our Next Auto Fund goal just went from $12,000 to $6,000

It could be argued that we need both vehicles, but a better case could be made for only needing one. Especially if were able to separate our emotions from the situation After talking it over with Betsy, she agrees that while having the 2nd vehicle is nice it is not a need.

Depending on where you live, where you work, the size of your family, along with other considerations a few sacrifices may be able to help you avoid owning a vehicle altogether, or help you get by with only one. These suggestions obviously wont work for everyone, so be creative.

You dont have to get rid of all your cars, but I do encourage you to run your own numbers through the calculation above to get a better idea of just how much vehicles cost and to begin seriously considering alternatives.

Do you own or finance your vehicles? Using the above calculation how much are they costing you? Will this information change your views of current and/or future vehicle ownership?

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