Reduce Your Cost Of Living Mark on 30 May 2008 08:40 am
Understanding The Cost of Car Ownership
I read with interest, John’s article entitles The Four Pillars Of Financial Freedom. In particular I picked up on what the article said about minimising monthly outgoings, because it reminded me of some figures I worked out recently. In this article I’m going to talk about the monthly cost of running a car. Sorry, I’m not going to show you any kind of magic formula that will suddenly reduce your monthly outgoings, but I think understanding where the money goes is an important first step in cutting it down. The figures I’m going to present appertain (mainly) to me and my car and my circumstances (note, in passing, that I am in England, UK), so of course other peoples’ will be different - especially if you are in another country. However, I fear that many people - like me before I went into the figures and worked them all out - do not realise how much they really do spend on their cars! This article is not intended to show exactly how much a car costs to run, rather, it is intended as an eye-opener. I think many will be surprised.
The cost of running a car is divided into three main areas:
- Standing costs (road tax, insurance, Servicing and MOT)
- The ongoing cost of fuel
- The cost of the car
Note that although I have breakdown cover, it is possible to run a car without it and so I will not include it.
Road tax costs £185/year for my 1.8 litre car. My last insurance bill was £577/year (this will vary a lot depending on where you live and how many miles/year you drive). Servicing and MOT come to about £250/year typically. Note, I am currently a relatively low mileage driver, and this is a significant factor in the cost of servicing and insurance. All this totals £1012/year, or (rounded) £84 month.
Another highly variable cost is that of fuel. I spend about £40/fortnight, i.e. about £87/month. Note that it is wrong to base a month on four weeks, because over a year you will loose a whole week! There are actually four and one third (4.33) weeks/month!
Finally we come to the cost of the car. Naturally this will go down the longer you keep each car. Also, the costing model I use here assumes that you - as I do - pay cash for the car and run it as long as it is viable to do so. I paid £6000 for my car, and I’ve now had it for nearly five years. Therefore, the car itself has so far cost me £1200/year, or £100/month.
That leaves us with the following monthly costs:
- Standing costs of £84
- Fuel costs of £87
- Car costing £100
These all add up to £271/month! Note that it still comes to £171/month pure running costs even if you don’t factor in the actual cost of the car in the first place!
How scary is that!
Remember, my calculations have taken onto account only the money you absolutely have to pay out - that is, I haven’t taken into account the cost of things such as breakdown cover, which many people would not want to run a car without.
on 30 May 2008 at 10:31 am 1.Rob Lewis said …
It’s definitely an interesting topic and something I’ve been meaning to do for a while. I’m currently trying to work out how much each trip to work etc costs in order to motivate me to walk more - just started to record my MPG so that I can work it out.
I think I’ll do some sums tonight and see how much my car is costing me too.
on 30 May 2008 at 10:32 am 2.John said …
Mark,
I think there’s two points you’ve missed:
1) There’s the opportunity cost of the initial investment in the car, i.e. the £6,000 invested in the car could have earned £955 at 3% and £1,657 at 5% interest over the 5 years - or been invested in the stock market or even used to start a business.
2) The car will have some residual value i.e. what you can sell it for, or it may cost you to dispose of it.
It would also be interesting to see that as a cost per mile which would then be comparable with public transport.
on 30 May 2008 at 1:20 pm 3.Mark said …
Rob,
Thanks for your comment. When you’ve worked out your numbers do you want to keep them private, or would you mind posting them either here or on MoneyWatch?
Regards,
Mark.
on 30 May 2008 at 1:37 pm 4.Mark said …
John,
Thanks for making out those points. There is another one we both missed: the cost of parking! With major cities now charging for on street parking - I think 2 hours cost me about 5 GBP last time I parked in the centre of Birmingham - I think this cost definitely need factoring in.
- Mark.
on 30 May 2008 at 1:41 pm 5.John said …
Good point, then again in Wiltshire most of our local car parts (small towns) are either FREE or very cheap.
I’ve got to go as far as Bath to pay that much.
on 30 May 2008 at 8:02 pm 6.Curt said …
Interesting discussion. I agree, cars are just as expensive (or more) to run as they are to buy. Car companies are reducing production because nobody is buying. They are going to have a give the cars away, just to make them affordable - but the increase in commondity prices is likely to increase car prices, which will cause many families to reduce their car purchases.
On the other side of the world, were the currencies are increasing against the dollar, like China and India. They are going to be buying more cars.
on 30 May 2008 at 11:41 pm 7.John said …
The trouble is as the (China and India) buy more cars they need more oil and the price of oil will rise even further, even faster.
on 02 Jun 2008 at 2:30 pm 8.Tristan said …
I filled up my car with regular unleaded petrol yesterday…
It cost £55.60!!!
…and it’s only a 1.6 Ford Focus!
I regularly get 350 miles from a full tank, so on that basis it costs me an average of 14p to drive 1 mile - makes you think
on 12 Jun 2008 at 7:56 pm 9.Jon said …
Also, if you bought your car with a loan, you should factor in the interest on that loan
on 29 Jul 2008 at 6:42 pm 10.cornish dragon said …
What is this about cars being worth less
than you bought them for ?…….
Surely this can’t be right ?
No one would bother to buy them !
What is this about road fund tax ?
Who pays that ?
CU
CD