Tip of the Week #384: Calculate the Cost of Owning a Car

One of my daughters recently got hit with a $2,000 car repair bill. Ouch.

We’ve all been there. Cars are expensive. Really expensive.

And I’m not just talking about the purchase price.

There’s insurance, gasoline, maintenance, repairs, registration, interest on car loans, and depreciation.

According to AAA, the average cost of owning and operating a new vehicle in America is now nearly $13,000 a year. That’s more than $1,000 a month!

Of course, that’s for a new car.  I have never owned a new car in my life, and never will.  If you are like me, perhaps you spend much less on cars each year.  Either way, here’s something else to consider.

What if you invested that money instead?

Let’s take my daughter’s $2,000 repair bill.

If she could have invested that $2,000 and earned an average annual return of 8%, it could have grown to more than $20,000 over 30 years.

That’s the opportunity cost of owning a car. Every dollar we spend is a dollar we can’t invest.

Of course, we need transportation. And spending $2,000 to repair an old car is generally much smarter than buying a new one.

But I’ve been thinking about something lately.

What if we didn’t need to own so many cars?

I live just outside Nashville, and I’m seeing Waymo’s self-driving cars all over the place.

They’re fascinating. Cars driving around town without anyone behind the wheel!

They give me hope.  Imagine a future where a family doesn’t need two or three cars sitting in the driveway.

Need to go to work? Call a car.

Need to go to the grocery store? Call a car.

Need a ride to the airport? Call a car.

No car payments. No insurance premiums on that extra vehicle. No oil changes. No surprise $2,000 repair bills.

Of course, you’d still have to pay for the rides. And we’re not quite there yet. But I think we’re getting close.  I hope we’re getting close.  It can’t happen fast enough for me.

I believe this could happen fast.  We’ve been here before.  In less than 15 years, the horse was replaced by cars.  

Imagine eliminating just one car from your household and saving $400 a month.

Invest that $400 every month at a hypothetical 8% annual return, and after 20 years you’d have approximately $236,000.

That’s a lot of money.

Here’s my tip: The next time you’re shopping for a car, don’t just look at the monthly payment. Think about the total cost of ownership.

And ask yourself whether you really need another car in the first place.

Maybe the next great financial breakthrough won’t be a new investment strategy.

Maybe it will be eliminating one of the biggest expenses in our lives: owning a car.

Have a great Saturday!
Dwane

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