What Does Your Car Really Cost You?

Scott McEachern |

You walk into a dealership and see a big sign "$162 bi-weekly for 5 years and no down payment" – that sounds like a great deal! Lots of people can come up with $162 bi-weekly, but it’s the other expenses that people forget about. Let’s work through an example and see what a car really costs once you factor in all the associated expenses:

Monthly car payments $162 x 2 = $324

Insurance: Depending on age, marital status, driving record, and other factors this can range from $70 to $200+ per month. Let’s use an average of about $120.

Monthly Insurance = $120

Fuel: Now you need to get from point A to point B. Depending on how far that is and how many road trips you make in a month, fuel prices can vary immensely. I’ve tracked my fuel expenses for the last 3-4 years and last year we averaged $160/m. I’m sure we’re all glad prices have dropped to $0.80/L instead of $1.30/L in the last few months.

Monthly fuel = $160

Maintenance: If you don’t want your car to fall apart, you’ll need to take care of it. This includes quarterly oil changes, miscellaneous repairs, windshield washer fluid, new wipers, etc. A safe estimate is $50/m (considering a repair can cost $400, you shouldn’t need more than one major repair per year)

Monthly maintenance = $50

Tires: Do you have winter tires? Budget $500 for tires and $200 a year to change them twice, which works out to about $60/m.
Tires = $60

Total Monthly Expenses

Monthly car payments = $234
Monthly insurance = $120
Monthly fuel = $160
Monthly maintenance = $50
Tires = $60

TOTAL COST = $624 per month


So remember when your eyes lit up because the big price tag said $162 (bi-weekly) after you factor in all of the costs above, the total expenses come to $624/m or $7,488 per year. This is the cost if you buy a new car in the $18,000 range (for your specific situation, you may have to alter some numbers). If your transportation costs are $7,488 per year and financial planners suggest you use no more than 15% of your income on transportation, then your annual income to support this vehicle purchase should be $50,000 net (after-tax dollars). That may seem like a lot, but it’s also the reason that many people are in debt. If your income is lower and you need a car to get to and from a job, look into used or slightly used options or perhaps even consider carpooling. Marketers want us to see and process the big $162 sticker, but as a consumer, don’t forget to factor in the other carrying costs of a vehicle. Try this exercise for your vehicle. Are you within the recommended 15%?