The average American spends nearly $10,000 on transportation expenses each year. More surprisingly, car payments account for less than half of this annual cost.
That’s right. We pay more in hidden and additional fees than for the vehicle itself. This is the true cost of car ownership.
With all these extra expenses, how much should you spend on a car? A typical budget allocates nearly 30% towards transportation fees.
Before you purchase a new or used vehicle, you should know how much it will really cost you in the long run. Don’t break the bank. Without keeping these additional expenses in mind, you could end up in a whole heap of trouble.
How Much Should You Spend on a Car?
In addition to the car payment each month, you’ll be paying for fuel, insurance, maintenance, and more. A car payment hardly accounts for even half of your total transportation costs.
Read our list of hidden costs and get a better idea of how a sustainable car payment looks for you.
Depending on the type of driving, such as city or highway, fueling up can be more than a negligible expense. This cost is also determined by the fuel efficiency of your vehicle and how many miles you drive.
Assuming 15,000 miles annually, fuel will cost you about $100 a month. To get the best approximation of your fuel fees, try this fuel economy calculator.
Most vehicle warranties cover car maintenance costs, such as tire rotations, oil changes, and new filters for your air and fuel. However, keep in mind that few warranties cover every part and service, and if you own a used or old car you’ll be paying out of pocket for maintenance fees.
New brake pads, batteries, headlights, windshield wipers — these are all expenses related to the maintenance of the vehicle.
If you aren’t under a warranty, you’ll want to save additional cash every month so you have savings stashed away for periodic car maintenance repair. Skimping on standard maintenance can damage your vehicle and increase the odds of an accident.
3. Car Insurance
Every state except New Hampshire requires car insurance. An average car insurance plan will cost more than $100 a month. The cost can balloon exponentially if you’re a new driver, insuring a vehicle prone to accidents, or including additional drivers on your insurance plan.
Although car insurance can seem like a luxury, splurging on protections beyond liability insurance is often worth the peace of mind and financial safety net.
4. Unexpected Repairs
Especially on used vehicles, repairs can be the most expensive hidden cost of car ownership. Poor maintenance adds up. If you choose not to change an old vehicle’s timing belt, it could snap and tear apart the entire engine.
Unfortunately, you can’t win. Even if you don’t drive your vehicle often, leaving it in park can split the tires, warp the rotors, and clog the gas lines. Regular driving and maintenance can help ease unexpected repair costs.
But still, always save additional cash every month, just in case the unthinkable happens. As an alternative to saving money yourself, you can also consider auto repair insurance to keep yourself covered in case of an emergency.
The interest on a car loan will add up and cost you extra. Currently, the average interest rate is about 4.5%. A $30,000 car will cost an extra $1500 by the time you’ve paid it off.
If you’re purchasing a new car, especially with bad credit, it’s best to keep the financing fees in mind.
6. Municipal Fees and Taxes
Purchasing a new car? Just like financing fees, don’t forget the sales tax. The base price is already a huge expenditure.
You’ll also be paying annually for your vehicle’s plates and registration. Fees related to your vehicle’s registration will likely cost you a little over $100 a year. While a small cost in the grand scheme of things, it can be an additional burden when it’s time to register the car again.
Car ownership has become even more expensive, as now many municipalities have instituted additional carbon taxes. These could cost you in the form of annual inspections. If your vehicle is older, has a larger engine, or has poor MPG efficiency, you’ll likely be paying your city to compensate for its carbon emissions.
Never heard of these city fees? Here’s a good example to learn more about vehicle road taxes.
Depreciation is the rate at which your car’s worth declines. A year after purchase, your vehicle has likely lost 20% of its original value. But you’re still making car payments for what it had been worth just a few months ago!
Until you sell the vehicle, your car is worth less and less. Depreciation makes you bleed money.
Luckily, depreciation can be controlled. Cars in high demand will retain more of their value. With regular maintenance and lower mileage, your vehicle will also be worth more than similar models in worse condition.
Control Your Costs
When you asked yourself how much should you spend on a car, you probably didn’t realize it’d be so complicated. If these hidden fees seem pressing, remember to keep things cheap and simple.
Smaller vehicles come with smaller price tags, smaller carbon footprints, and usually more efficient mileage. Save money on gas and depreciation by walking to nearby stores and events, rather than taking the car.
You might even want to consider leasing a vehicle, as opposed to buying one outright. But those come with their own heap of complications.
Whatever you do, MasterTech is here to help. Want more help with your car-buying experience? Check out our automotive shopping section.