The total cost of owning a car

General Advise

When I was buying the first car of my own, my seniors at the company gave me two main pieces of advice. 1. Buy a used car. This is because I’m still inexperienced in driving, so I could often scratch or ruin my car related to minor accidents. 2. The budget should be less than half of my annual income.

No. 1 is pretty reasonable advice, but about No. 2 I don’t know what the basis is. Recently, I was watching YouTube and I was looking at a financial expert (?) recommended a reasonable vehicle price for each income. If you are mortgage free, it is suggested to use up to half of your total annual income, and if you are renting a house, you can get up to 3~4 months of your total annual income, and especially if you have a monthly income of less than $3,000, you should not buy a car. Use public transportation instead.

Again, I don’t know what the rationale is, but considering that Car-poor have become a social problem and encourage people to buy unreasonably expensive German cars, it seems to be a good thing that there is such advice.

 

Total Cost of ownership

So, I did a simple calculation of how owning-a-car affects my personal finances on top of the price of the car.

[Total cost of ownership for a $50,000 vehicle]

	petrol	Diesel	PHEV	EV
Vehicle price	$50,000	$53,000	$60,000	$70,000
Depreciation / year	$3,333	$3,533	$4,000	$4,667
Fuel Costs / year	$1,500	$1,305	$525	$300
Registration fee / year	$900	$900	$900	$900
insurance / year	$600	$600	$600	$600
Maintenance / year	$350	$350	$350	$350
Mortgage Interest / year	$2,500	$2,650	$3,000	$3,500
Running cost per year	$9,183	$9,338	$9,375	$10,317
Running cost per month	$765	$778	$781	$860
Monthly net expense (excluding depreciation)	$488	$484	$448	$471
10-Year Total Cost	$91,833	$93,383	$93,750	$103,167

 

After making the table, some things come to light that I didn’t realize before.

• Having a car costs a lot more than just the price of the car. I thought I bought a $50,000 car, but 10 years later, the total cost of ownership is more than $90,000.
• If you have mortgage to pay interest, the cost of interest on your loan is as high as the price of your vehicle. I bought a $50,000 car, and after 10 years, the interest on the loan alone is close to $30,000. I don’t think you should buy a house with a loan until you pay off the loan.
• Diesel or plug-in hybrids (PHEVs) are more expensive than gasoline vehicles, but the 10-year total cost of ownership doesn’t make much of a difference due to the low cost of fuel.
• EVs have a lower total cost of ownership advantage than PHEVs due to the high price tag.

It’s a quick look at how financially expensive it is to own a car, and I think you should avoid big expenses like buying a car, especially if you still have a mortgage.

By the way, Australia has almost no subsidies for EVs, but only EVs and PHEVs are exempt from Fringe Benefit Tax if purchased through a company lease. The bottom line is that you can be exempt from income tax, so you can save nearly 20% of the price of your car in taxes.