If you made New Year’s resolutions this year, you might be one of the millions of others who resolved to save more money. It’s a reasonable goal, but it’s hard to save money if you don’t know what you’re spending on.
Take owning a car, for example. Many drivers focus mainly on their monthly loan or lease payment. Rideshare companies often herald their drivers earnings after deducting only the cost of gas. But both of these are reasonable tendencies, but ignore unavoidable — and very real — costs of owning a car.
Here, we’ll detail a few of those hidden costs and take a look at where you may be able to save.
(Not so) fun fact: depreciation is usually the biggest cost of car ownership. It’s also one we tend to ignore.
Everyone knows a car loses value as soon as you drive it out of the lot. But it probably loses value faster than you’d expect. After a year, it’ll likely lose around 20% of its value. After five years? More like 50% or more. The IRS counts the cost of car ownership at 58 cents per mile — a very large chunk of which reflects depreciation.
Some cars depreciate slower than others, and older cars depreciate at a slower rate, so if you’re serious about saving money, do your research before you buy. Otherwise, limit how much you drive and be sure to do regular maintenance on your vehicle.
Registration, fees, and taxes
By law, you’re required to keep your vehicle registered with your state. Usually, you have to renew your registration annually or every few years, depending on where you live. And the price can vary widely per state. For example, in Arizona, it can cost as little as $8 to register an automobile. In Florida: $225.
And don’t forget about taxes, either. In addition to sales tax when you buy or lease a new or used vehicle, you may also have to pay a personal property tax, which is usually based on how much your car is worth (though it can depend on your state, county, and municipality). For example, in Boston, you pay $25 per $1,000 in vehicle value each year.
Unfortunately, there’s no way to minimize these expenses. The best thing you can do is make sure you pay them on time so you’re not penalized.
Maintenance and repairs
It takes a lot to keep your vehicle running smoothly. Between oil changes, tire rotations, new tires, and other maintenance costs, it could cost you upward of $1,000 a year, depending on the age of your car and what work you can handle on your own. (This is not to mention occasional, larger repairs, like a transmission replacement.)
Fortunately, you may be able to do some routine maintenance yourself — or swap services with a friend who knows how. Just remember: maintenance keeps your car running, so it’s not something you want to ignore.
Ah, insurance. Our sweet spot. Of course, car insurance costs vary widely based on a variety of factors, such as where you live, what type of car you drive, your driving history, and more. It can also depend on how much coverage you want. Broadly speaking, an average policy will range somewhere between $1,000 and $2,000 annually.
The good news here is that it’s easy to shop around for the best price. The extra good news is that a pay-per-mile option like Metromile gives you far more control over your total bill; on average, our customers save $741 per year.*
It’s hard to estimate the total costs of owning a car, as it can vary widely depending on what kind of vehicle you drive, how many miles you drive each year, where you live, and more. Safe to say, though, that car ownership is an expense of several thousand dollars a year — which, if you’re investment minded, also carries a gigantic opportunity cost of lost earnings over a lifetime.
At the very least, this argues for exploring ways to trim those costs. Plain and simple, owning a car is super expensive—even if expenses are optimized. Might it be time to reconsider just how much you’re driving altogether?
In our next post, we’ll go into the ultimate way to cut costs: minimizing driving or getting rid of your car altogether.
*Average annual car insurance savings by new customers surveyed who saved with Metromile in 2018.
Jenna Lee is a content marketer, Oxford comma enthusiast, and cat lover living in the Bay Area.