022 | The True Cost Of Car Ownership

May 8, 2017
Jonathan Mendonsa

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.

Do you know what your car is actually costing you each year? What about over an investing lifetime? In this episode of the ChooseFI Podcast we cover the True Cost of Car Ownership and you’ll be absolutely amazed at the numbers.

Podcast Episode Summary

ChooseFI: The Ultimate Guide to the True Cost of Car Ownership
Your car payment is a terrible way to spend your hard earned money
We’ll present two different perspectives: Brad will show the long-term compounded cost of buying/leasing new cars continually versus holding a car for 15 years while Jonathan is going to present the yearly cost of your car
Brad wanted to see what it was costing someone to constantly “manage their car payments” at a set number forever by buying/leasing new cars
This example is too conservative so a FI person would actually save even more money!
In Brad’s example the FI person is buying a new car every 15 years. They have payments for the first 5 years and $0 car payments the final 10 years. Person B is constantly paying $300 per month. This is a 45 year study, so Person A bought 3 new cars in the 45 year period
At the end of the 45 year period, Person A’s savings compounded to be worth $742,000 versus Person B who was constantly paying $300 per month.
Takeaways: Don’t buy new cars and continue to drive your car as long as possible with no car payment!
Most people can’t truly afford an expensive car and house even on a large salary. This is a true key to FI
Astounding that $300 per month for 30 out of 45 years are ending up with $742,000 while most people don’t have anywhere near that much money after a lifetime of working and “saving.” That also shows how little money most people are saving
Jonathan’s bad track record with buying cars in his life

The True Cost of Car Ownership Calculator

Jonathan’s example for yearly car cost compared a new car for $30,000, a 5 year old car for $15,000, and a 10 year old car for $5,000
Went through yearly depreciation calculation for Jonathan’s three examples
Went through a calculation of annual opportunity cost of the year-by-year amount lost at 8% annual return if you would have invested based on these 3 examples
Calculation of maintenance, insurance, taxes, inspections, etc.
Also calculate the cost of gas each year depending on the type of car
The 20 year difference from having a used car versus a new car is almost $250,000
Jonathan’s determination is you should buy a ‘gas sipper’ that’s at least 5 or 10 years old