Life is becoming more expensive than ever and for the first time in a long time, the new generation are at risk of not making as much money as their parents did. Bills and credit card debt is stacking up and more people are struggling to get by how they used to. I don’t mean to be a downer on your mood today but one of your major expenses comes with owning a vehicle. Not only owning a vehicle, but maintaining it, registering it and insuring it. A car can really take its toll on your bank account. This blog talks about the real expense of owning a car and what it shows might shock you.
But if you pay close attention to how much your vehicle costs, it can also represent an opportunity to buy and own your car the right way and save a lot of money each year. The problem is, you don’t always understand the complete costs of owning a vehicle.
As mentioned above we have 4 major expenses;
- The initial down payment (or total cost of the vehicle)
- Finance costs – most people buy cars on finance so that represents an extra monthly cost throughout the year.
- Maintenance – taking good care of your car, especially used ones is vital in keeping it running for a long time.
- Insurance – Like it or not, we need auto insurance and that can run pretty expensive at times.
With large families, sometimes 2 cars are necessary to get to and from that soccer practice while your spouse is working late. So double those costs for two vehicles and you really have some expenses.
AAA actually lists seven expenses as owning a car because they consider tires as a separate category to maintenance but for the sake of this, we will group them together.
As soon as you drive off the lot, your car becomes significantly less valuable. Depreciation of your vehicle actually represents 40% of the annual cost of owning a car according to AAA. $3,654 is the average depreciation rate per year of a vehicle. Obviously, it depends a lot of year, make and model. But also, stats show, as soon as you drive your new car off the lot, it loses 20% of its value and roughly 15% per year thereafter, Not such a surprise to most, but still, highly significant and a BIG cost.
If you buy a car on finance (which most people do), you are likely to spend around $669 per year as “finance costs” throughout the year.
Average costs to insure your vehicle are $1115 per year. This again depends on your year, make and model and your driving history. Also, insurance varies form state-to-state depending on where you live. Take your time; get a few options before just going with the first one who quotes you.
Now you have your vehicle purchased and insured, you are ready to go places. To go places, you need to fill up that gas tank. While America is certainly cheaper to fill up than other countries in Europe, it still represents a significant cost throughout the year. Averaging at 11.2 cents per mile, the average cost over the year comes to $1681.50. Again, these are numbers based on average statistics but each situation will vary depending on your driving habits etc.
Maintenance and tires
As I said, grouping these together on average will cost you $913.50 over the year. Here covers your average maintenance issues like oil changes and check ups over the year. This is your AVERAGE but as many people know, the higher end luxury cars are often a lot more expensive.
Licensing, registration and taxes
This is another area that depends highly on the state you live in. But AAA averaged it out at $668 over the year.
So takes all those categories into account, and we have quite a bill. All numbers used are from a study done by AAA and are just given to give you an idea of how much it costs to own a car throughout a calendar year. For visual purposes, I have broken it down into a pie chart so we can see where our money goes.
Costs of owning a vehicle
| ||Percentage|| Cost $|
|Depreciation|| 42.00% || $3,654.00|
|Licensing, registration and taxes|| 8.00% || $668.00|
|Maintenance and tires|| 10.00%|| $913.00|
|Insurance || 13.00%|| $1,115.00|
|Financing || 8.00%|| $669.00|
|Fuel || 19.00% || $1,681.00|
|TOTAL|| 100.00%|| $8,700.00|
Credit: All averages used from a study by AAA and http://www.moneyunder30.com/true-cost-of-owning-a-car