Calculating your actual cost of car ownership is a lot more complicated than most of us think.
The most accurate way to calculate the cost of driving would be to include the vehicle’s depreciation over the term of ownership, insurance, fuel, plus maintenance and repair costs.
Since you probably don’t know how long you will own the vehicle, calculating depreciation would be impossible, unless you’re leasing. If you leased the vehicle, then your payment is basically covering the depreciation for the term of the lease. At the end of the term you would have no further liability, unless there was damage to the vehicle.
So for simple purposes, most people just use their current vehicle payment for calculating actual cost of driving. This is probably close enough. Taxes, fees, interest charges are all part of your monthly payment.
Insurance costs may change over the term of ownership. Lenders require than you have collision insurance on your vehicle. You may or may not want to keep this once your vehicle is paid off. There are lots of other variables and different types of coverage with insurance. This will affect your monthly rate and consequently your overall cost of driving. You may want to look at what exactly you have for coverage and whether you still need it (or need more) while calculating your cost of driving. We will discuss insurance in future articles.
Fuel is another cost that can continually change. You can’t count on the fuel economy data shown on the EnerGuide stickers. There are too many variables — driving habits, condition of the vehicle, etc. — that effect your fuel economy. We will also discuss ways to improve your fuel economy in future articles. Resetting your trip odometer the next time you fill up, driving as you normally do for that tank of fuel, and then calculating how much fuel you used for those kilometres will give you a pretty good idea of your fuel economy. Be prepared to be surprised by this number.
The last major cost to driving is maintenance and repairs. This cost is the one that is most misunderstood and, for many people, not even considered when calculating their cost of driving. For a lot of people, this cost just comes out of the monthly family budget. When big repairs are needed, and you’re on a tight budget, it affects the whole family: fewer dinners out that month, less saving for retirement or emergencies and just less money at the end of the month.
Very few people put money aside every month for maintenance and repairs. We know those bills are coming, yet we hope somehow they won’t. Murphy’s Law says they will come when we can least afford it.
Unless you took advantage of pre-paid maintenance, it is very difficult to know in advance what your maintenance and repair costs will be. Various sources report that after 60,000 kilometres you should expect on average between $150 and $300 per month in maintenance and repair costs. This won’t be a cost each month, but will come periodically in the form of much larger bills. Tires, air conditioning, water pumps, alternators, injectors, and lots of other parts will wear out and need replacing.
Most manufacturers now offer some form of pre-paid maintenance. This allows the costs of maintenance and repairs to be included in your monthly payment. It also saves you a considerable amount of money over the term of ownership.
So, to calculate your actual cost of driving you need to add together your car payment, insurance costs, fuel costs, and maintenance and repairs. It’s fair to say that most if not all of these costs will increase over time. Fuel costs will continue to rise. Insurance costs will continue to rise. Maintenance and repair costs will continue to rise. So calculating your actual cost of ownership must be done on a regular basis. You need to know where they are currently and whether your costs can be reduced with any behavioural changes on your part.
Once you have calculated your current cost of ownership as accurately as you can, you should look at how this compares to the cost of driving a new model. Better interest rates, better fuel economy, and lower maintenance and repair costs may make for a lower cost of driving on a new vehicle. Before making a decision to trade though, go over all the numbers, talk with a car person you trust, and weigh all the pros and cons.
Catch Driving, with Jens on CHON FM Thursdays at 8:15. If you have any questions or comments you can reach out to Jens Nielsen at firstname.lastname@example.org, Facebook or Twitter: @drivingwithjens.