Earlier this week, we took a look at one of the big personal finance decisions out there–buying a car. But the price of the vehicle alone isn’t the only consideration. Unlike a blender or sofa, your shiny new mode of transportation will tap your budget year round. But by how much?
Generally speaking, car ownership involves four additional costs: fuel, maintenance, insurance and taxes. (Some states and municipalities don’t have a property tax on vehicles, so you might be off the hook for that last one.) Problem is, these costs aren’t like your mortgage or cable bill. They can be hard to predict and aren’t due at the same time each month.
So how can you plan for these? Well, just like any other irregular or unexpected costs, it’s a good idea to put something away each month for car expenses. The trick is figuring out how much you’ll need. Let’s start by estimating the annual costs for each of these items.
Fill ‘er up
With gas prices rising and falling like the barometric pressure on a spring day, budgeting for fuel sure ain’t easy. But you can get a rough idea of what to expect, and then tweak that amount as the year goes on.
You’ll need to consider several variables for this one: the miles you travel in a given year, your vehicle’s miles per gallon, and the cost of gas where you live. This is going to be an estimate, of course. Unless you’ve got a wicked crystal ball, you won’t be able to predict any of this for sure–but you can get close.
If you’ve been keeping records of your miles traveled, you can take a look at the previous year to predict this number. Of course if you’re like me, those records don’t exist. So figure out a rough estimate based on your commute (if you have one), annual trips and even carpool. You should add on for errands and other around-town trips. For reference, the U.S. Department of Transportation estimates that on average, Americans drive 13,476 miles per year.
Now calculate the amount of gas you will likely consume. Let’s say your car gets 32 miles per gallon, and you expect to drive 14,500 miles this year. To find out how many gallons of gas you’ll use, divide:
14,500 ÷ 32 = 453.125 gallons
And the last part is simple: multiply this number by the cost of gas per gallon. In my area, we’re averaging about $3.85 per gallon, so for the sake of this example, let’s use that number.
453.125 • 3.85 = 1,744.53
The annual cost of gas for this fictional vehicle is estimated at $1,744.53.
Maintenance and Repairs
While maintenance can be pretty predictable, repairs are something that you can’t foresee–just like you didn’t see that light pole behind you in the Giant parking lot. But you can budget for these.
Again, if you keep good maintenance records, you can review these to see what you have paid in past years. Your mechanic may have these on file, as well. Remember, most maintenance is based on the number of miles driven, so if you add a long commute, you can expect these costs to rise. The kind of car you drive also matters. And of course, older cars will likely require more maintenance and repair.
If you haven’t tracked these expenses, you will probably have to make a good guess. Ask your dealer or mechanic about this. Or start with $2,000 per year and see what you have left over in December.
Whatever you do, don’t forget your Emergency Fund. This is where you’re big, unexpected repair costs will come from, like an accident that isn’t covered by insurance.
Speaking of Insurance
If you’re driving in the good old U. S. of A. and you don’t have “Farm Vehicle” stamped on the bumper of your truck, you will need to pay insurance. Again, this is a cost that depends on several variables, including your age, your driving record, and much more. But once you choose your insurance policy, that number will be set in stone, as long as you keep your driving record squeaky clean.
The Tax Man
Some states (and some municipalities) require personal property taxes on vehicles. Problem is, these payments are not usually monthly. Sometimes they are only charged annually, and in some places, residents pay these taxes quarterly.
To budget for taxes, take a look at what you paid last year. Or look up a property tax calculator for your state.
Month by Month
Let’s say you’ve found all of these annual costs. Now it’s time break them down, so that you can put away some cash each month.
Fuel = $1,744.53 per year
Maintenance = $2,000 per year
Insurance = $1,566 per year
Taxes = $2,867 per year
First add these to find your total annual costs:
1,744.53 + 2,000 + 1,566 + 2,867 = $8,177.53
Now divide this total by 12 to get your estimated monthly costs.
8,177.53 ÷ 12 = $681.46
So, based on this fictional numbers, socking away $682.46 for car expenses should cover the annual cost of owning and maintaining this fictional car. (Your milage may vary.)
Do you have any tricks for covering these unpredictable costs? Share your ideas or questions in the comment section.