The actual costs of owning a car depend, to some extent, on where you live. Generally, having a car is more expensive in a city; where you may have to pay for parking and face higher, less expensive insurance premiums in a suburban or rural area. But you may be surprised to learn that the average American household spends nearly 20% of its total income on auto-related expenses. So where does the money go?
Gas
Obviously, your car needs fuel to run. And while hybrid cars, which use gasoline and electric power, are becoming popular, gasoline could be an important item in your budget, depending on the type of vehicle, the distance and how often you plan to drive.
Maintenance
You should also consider maintenance, which typically includes the cost of new tires, oil changes, car washes, engine tune-ups, and repairs. It’s wise to budget about $30 (or 0.10% of the median new car price of $25,500) a month on regular maintenance for a new vehicle and about $50 a month for one that’s more than 3 years old. Repair costs, while low on a new car, can easily run into the thousands on older cars.
insurance costs
Next, you need insurance. In fact, in most states you cannot register your vehicle without proof of insurance coverage. Insurance costs vary dramatically based on your area, age, driving history, number of drivers that will be driving the vehicle, distances traveled, and other factors. The amount of your deductible and the type of insurance coverage (bodily injury, property damage, medical payments, comprehensive, collision, emergency roadside service, rental car expenses, etc.) you choose will also affect the cost. of your insurance premiums. You can ask a local insurance agent how much you’d have to pay to insure the car you’re considering. You can also get free insurance estimates online.
missing value
A significant, though often overlooked, cost of owning one’s property is depreciation, or loss of value. A new car typically loses about 35% to 40% of its value within the first three years, starting the day you drive it home. After that, depreciation rates on most cars level off at around 7% to 10% per year. While you won’t actually pay for depreciation out of pocket, this loss in value is a cost of ownership because what you own is worth much less than what you paid for it. For that reason, you may still want to research average vehicle residual values before you buy a car; Often a little extra cost up front (both time and money spent) can save you money in the long run.
Leasing guides can be a good source of residual values, whether you plan to lease or not. Ask your bank or search the internet, leasing guides like the ALG guide are available.
