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Cost of Owning Vehicles

12.23.2011 by Matt Jabs //

Save for future vehicles

As a general rule, wealthy people do not finance cars – or anything for that matter. It’s easy to understand why: saving money for a car (rather than borrowing and paying interest) reduces the overall cost and saves you money in the long run. Let’s stop borrowing money for vehicles and start acting wealthy.

To quickly demonstrate how much vehicles cost (even when paid off), consider the following examples:

  1. $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.
  2. 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 ($1,200 in interest costs and $1,500 in bargaining costs.)  It’s 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?

Cars are expensive to own

Setting aside the “paying cash vs. financing” debate, let’s 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 (but plan to sell the scooter soon.)

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

  • $200/month for gasoline (G)
  • $100/month for repairs and maintenance (M)
  • $60/month for car insurance (I)
  • $10/month for plates and registration (R)

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

Running the calculation through for our situation reveals that we spend roughly $360/month for each vehicle. Since both the car and Jeep are “paid off” we see that it cost us approximately $720/month to own both – which is roughly $8,650 annually.

If you finance your vehicle you can simply add an [(F) for financing] to the equation:  F + G + M + I + R = cost/month for your financed vehicle. I’m sure you won’t be excited about the results of the equation, but it’s very eye opening.

Make the change

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 is currently funded around $3,100.)

Update: We bought a new vehicle (much better gas mileage) and are selling the other car, and the Jeep.

It could be argued that we need both vehicles, but a better case could be made for only needing one. Especially if we’re able to separate our emotions from the situation (a wise thing to do when contemplating any financial decision.)  After talking it over with Betsy, she agrees that while having the 2nd vehicle is nice, it is not a need.

Alternatives to owning a car

Depending on where you live, where you work, the size of your family, and other considerations – with a few sacrifices you may be able to avoid owning any vehicles, or perhaps get by with less. These suggestions obviously won’t work for everyone so apply it to your situation and be creative.

  • Invest in a bicycle. People spend so much money on cars but are typically unwilling to invest in a solid bike. If you spend $1,000 you can get a commuter bicycle that, with the proper maintenance, can last years.
  • Walk. If you live close to your grocer and employer, consider walking more. Just be sure to invest in a nice pair of shoes first.
  • Carpool. Pay your coworker to hitch a ride everyday and leave your sole vehicle home with your spouse.

You don’t 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.

What about you?

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?

Categories // Money Management, Transportation Tags // automobile, cash flow, financing, Money Management

Even Paid Off Vehicles are Expensive

04.24.2011 by Matt Jabs //

Tomorrow I’ll publish a more robust and detailed article on this subject but given how high gas prices are threatening to go, wanted to touch briefly on it today.

Vehicles are expensive to own!

Understanding that financing vehicles is more expensive than paying cash, let’s consider how much it costs Betsy and I to own our “paid off” vehicles… perhaps we should be riding our bikes more!

We currently own a 2002 Pontiac Grand Prix (hers) and a 2000 Jeep Cherokee (his).  Both vehicles have been paid off for years… but despite that fact how much are they costing us each month – and do we really need to own both?

No, we don’t need both, but will most likely hold on to both until one dies.  We will not, however, be replacing both.

Adding up our costs of insurance, maintenance, fuel, etc… we found that our 2 “paid off” vehicles are costing us roughly $750/month.  As mentioned above, I’m publishing a detailed article on the topic tomorrow so watch for that.  In the meantime, check out these other personal finance articles from around the web.

God bless.

Other solid personal finance articles

  • Save Money Purchasing Beef In Bulk – Betsy and I purchase a 1/4 of grass-fed beef every year and highly recommend it for savings and higher quality meat.
  • How Much House Can I Afford? – With the mortgage rates at their all time lows and the housing market still favoring buyers, this may be a good time to buy. But how could you tell how much house you can really afford and that you’ll be ready for homeownership?
  • YNAB 3 Budget Software Review – Here is another solid review of YNAB, the same budgeting software I recommend.
  • Where is My Tax Refund? – How to check the status of your tax refund.
  • Can you get a mortgage after Bankruptcy? – 3 years after filing Bankruptcy Debt Kid looks to find out if it’s possible to buy a house.
  • The Best Ways to Save for Retirement – Phil weighing in on helping you save for your nest-egg.
  • Save tax on RESP withdrawals – If you’re looking for info on RESP’s, Mike is the go-to-guy.
  • How Social Security Benefits Are Calculated – I’m glad Mike is writing about this… because I certainly wouldn’t want to!  🙂
  • Do You Need to Make a Will? – I think everyone should have a will, it greatly simplifies burdens on loved ones and allows you to give where you’d like.
  • How much do you (really) need in your emergency fund? – David helps us determine how much to save for emergencies.

Categories // Money Management, Rally Tags // automobile, cost

Benefits of Fixing my Own Vehicles

08.31.2010 by Matt Jabs //

Tangible work for a change – whew!

I’m not a mechanic, I’m an IT guy – and a wannabe Personal Finance writer. That said, I do enjoy working with my hands and beholding a tangible job well done, especially since IT work and writing are thought jobs w/fewer material results.

Let’s consider the following example:

  • At work today I helped fix customer IT problems remotely for 8 hours.  I accomplished my work, reduced my ticket load, and gained satisfaction from helping my customers.  However, I was never able to behold or physically feel the benefit of my labor.
  • After work I set out to repair a faulty windshield washer pump and headlight dimming issue on my wife’s 2002 Pontiac Grand Prix.  I completed the repairs successfully and was able to see and feel both the work… and the results.  An awesome change of pace.

It’s not that I dislike my day job… rather I love the several benefits of labor diversity.

We save money

A good mechanic is hard to come by; if you find one, hold onto that relationship as long as possible.  My mechanic’s name is Sam Postema.  Sam and I began as simple networking contacts but quickly became friends.  Sam runs the best auto repair shop in Lansing, MI and I trust him with all automotive work I choose not to perform myself.

Here is a rough estimate of the cost for Sam to perform the repairs and earn a respectable profit:

  • Replace windshield washer pump = $110 (part – $40, labor – $63, fluid disposal & refill – $7)
  • Headlight dimming issue = $40 (labor & parts)
  • Total = $150

This is a pretty good price but doing it yourself always saves money.  You should follow this route whenever feasible.  I shopped for the part at my local CarQuest Parts Store.

  • Total = $22

A total savings of $128.  Not too shabby.

I learn more about auto repair

I have replaced many parts on many automobiles but had never replaced a windshield washer pump.  It was fun.  In case you are wondering… here are the instructions.

How to replace a windshield washer pump on a 2002 Pontiac Grand Prix:

  • Pump resides under the washer fluid reservoir on the side closest the fender.
  • Jack front of car up and place on jack stands (optional, but makes job easier.)
  • Turn steering wheel all the way to the right.
  • Remove front wheel well liner on the passenger side… it’s under the battery.
  • Get a bucket and place it under your work.
  • Unplug the electrical connection to the pump.
  • Unplug bottom of pump from reservoir and drain into bucket (draining via pump hose takes too long.)
  • Unplug hose from pump, remove, then clean and dry the area housing the old pump.
  • Install bottom of new pump into reservoir, connect pump to pump hose, and connect electrical line.
  • Refill reservoir, test, and enjoy!

I also tested, cleaned, and lubricated the electrical connectors (and the ground) for the headlights.  That did the trick.  They are shining bright and functioning optimally once again.

My wife digs it

She pulled in the drive way, saw me wrenching, and thought she had a grease monkey under her car – turns out it was her husband.  She was surprised and thought it was cool – which is always a bonus.  😉

All in all it was a great learning and money saving experience.

Categories // Earn Money, Money Management Tags // automobile, fix, save, Work

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