The Surprising Costs of Automobile Ownership

The actual costs of owning an automobile depend, to some extent, on where you live. Generally, owning a car is more expensive in a city; where you may need to pay for parking and face higher insurance premiums – and less expensive in a suburban or rural area. But you may be surprised to know that the average US household spends almost 20% of its total income on car related expenses. So where does the money go?

Fuel

Obviously, your car needs fuel to operate. And while hybrid cars, which use both gasoline and electric power, are becoming popular, gas could be a major item in your budget, depending on the type of vehicle, how far and how often you plan to drive.

Maintenance

You should also consider maintenance – which generally 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) per month in regular maintenance for a new vehicle and about $50 per month for one 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 can't register your vehicle without proof of insurance coverage. Insurance costs vary dramatically according to your area, age, driving record, number of drivers who will be driving the vehicle, the distances driven 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, car rental expenses, etc.) you elect will also impact the cost of your insurance premiums. You can ask a local insurance agent how much you might have to pay to insure the car you're considering. You can also get free insurance estimates on the internet.

Lost Value

One significant, yet often overlooked, cost of auto ownership 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, most cars' depreciation rates level out to about 7% to 10% per year. While you won't actually pay out of pocket for depreciation, this loss of value is a cost of ownership because what you own is worth much less than you paid for it. For that reason, you may still wish to research vehicle average residual values before you buy a car – often, a little extra cost upfront (both your time and money spent) may 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 look on the internet, lease guides such as the ALG guide are readily available.

You can find much more information on every aspect of the car buying and financing process in my book, "The Insider's Secrets" and on our website, www.TheInsidersSecrets.net. In addition to ordering information on all of our time saving, stress reducing and money saving products and services, you'll find many helpful articles and links to lenders, appraisers, credit reporting agencies, fuel economy, debt management and more.