Operating a Car is Expensive!

In this video, John Nielsen of the American Automobile Association discusses the costs associated with owning and operating a car.

What do you know?

Most people really don’t have a clue how much their car costs them. There’s the initial purchase price, or the monthly car payments; okay, people know about that. And the costs associated with registration. And insuring the vehicle. And putting gas in the tank—it sometimes feels like you spend all your time putting gas in the tank! Not to mention car maintenance and repairs, which, as everyone knows, can take a sudden bite out of the budget.

If you’ve never totaled these numbers, they may come as a bit of a shock. The AAA put together some yearly cost calculations for a typical sedan, and it might come as a shock to you.

Run the numbers

Once you’ve seen how AAA determines these costs, says Nielsen, you can substitute your own numbers so that the estimate is accurate for your vehicle.

Operating costs

You want to start by determining your operating costs. Your operating costs are the sum of what you spend on fuel, maintenance, and tires over the course of one year. According to Nielsen, the total operating cost figures for an average sedan, driven 15,000 miles over the course of one year, would be $2,946. This figure is for 2012, so now you’ll need to adjust it upward.

Ownership costs

Next you want to determine the total ownership costs. Total ownership costs refer to those items that have to do with purchasing, licensing, and insuring the vehicle. And the one cost that you might not have considered adding in is the most expensive of all: vehicle depreciation. That is, according to Nielsen, “the single largest cost of owning a vehicle.”

Again looking at 2012 (so don’t forget to adjust for 2016 and not in a good way!), the average sedan (and remember that more and more people are choosing not to drive sedans anymore, but are rather favoring SUVs, which adjusts all these costs further upward still) totaled $6,000 in total ownership costs.

Total driving costs

So now all that you need to do to determine how much it cost you to own and operate your car over the course of a year, just add the operating costs to the total ownership costs. In this 2012 sedan example, assuming that the car was driven 15,000 miles, the total driving costs came to $8,946 or 59.6 cents per mile.

How can I lower these costs?

Obviously purchasing a smaller, less expensive, more fuel-efficient car is your best option for lowering your costs. But even if you don’t want to do that, remember that you can take some steps to spend less. Ownership costs are fixed, he says, “the more miles you drive the lower cost per mile. If you drive more, your yearly cost per mile goes down a little, and if you drive less it goes up.”

The other thing to think about is regular maintenance. Your car came with a manual and it has a maintenance schedule in it. If you perform regular maintenance, you can nip problems in the bud, or even prevent them from happening in the first place. Your ownership costs are increased by expensive repairs, and some of them, at least, can be eliminated if you take good care of your car.

Now that you know how to calculate, you can lay out a reasonable yearly budget for running your vehicle.