REAL Cost of Owning a Car

For those of you that read my blog, I typically write about real-estate-related matters, however I am going to deviate slightly to some personal finance – the true cost of car ownership.

I overheard one of my colleagues mention last week that she ‘really would love to buy a car’.  She hates walking, waiting for the bus to around is a pain, and her hair is always messed up by her hat in cold weather.

Ho-hum.  I still hate my car…and I told her that.

Why? Because it takes money out of my pocket.  Some people list their vehicles as an ‘asset’, but if you are a follower of Robert Kiyosaki (author of Rich Dad, Poor Dad), you might be inclined to think of it as a liability.  Let me explain….

I have a very accurate picture of how much a vehicle costs as I save every receipt for business purposes so here is my breakdown in expenses for 2012: (note, this is based on driving almost 40,000KM last year, which I realize is above average)

Car Payment:  $0…..(it is a 13 year-old car….no payment here!)

Insurance: $1390…(this is actually low as I qualify for a good discount based on my rental properties being with the same company)

Routine Maintenance: $2020…(oil changes, coolant flushes, tire changes, general issues)

Non-routine Maintenance: $1600…($1200 for a brake-job and ABS sensor, $400 to repair a bumper from a hit and run event in a parking lot)

Miscellaneous: $400..(CAA membership, registration fees, safety + emissions test)

Gas: $3800…(again, I drove 40,000KM)

GRAND TOTAL:  $9210

Remember, this is WITHOUT a car payment.  I also did not include any depreciation, of which I have very little due to my car being 13 years old, but everyone knows that cars depreciate at blinding speed.  Throw in a $300 per-month car payment (which is low) and this number jumps to $12,810.

Don’t get me wrong, I hope to never sell my car.  I need it for work and business  purposes….and like my colleague, I don’t know if I could stand waiting in the cold at a bus stop!  OK, so maybe I don’t ‘hate’ my car like I mentioned above…I just hate that it takes money out of my pocket.

So what I do hope to accomplish with this post?  At least get people thinking about the TRUE cost of car ownership…don’t just look at that advertisement for a nice car at only “$149 bi-weekly”…..what they don’t tell you is that it is bi-weekly payments for the better part of a decade..

And who knows, maybe  you can live without a car for 4 years and have $40,000 in your pocket to invest in some cash flowing real estate!

Numbers Don't Lie??

According to the Jan 14^th issue of “Maclean’s Magazine”, the average debt-to-income ratio of a Canadian household is now 164 per cent, higher than the pre-crash levels in the USA.

So what’s in a number? 

This calculation of this ratio is simple.  Take your current debt load (car payments, lines of credit, credit cards, mortgage, etc) and divide this by your income.  YES – your mortgage is included in this.

Let’s take one scenario about Joe. 

Joe is 30 years old and makes a $50,000 salary.  He has paid all of his student loans, owns his car outright and has no consumer debt – in fact he has saved up $25,000 for a down payment on a $150,000 condo in Kitchener, Ontario.  This leaves him with a mortgage of $125,000 that he has locked in for 10 years at 3.5%.   His mortgage payment is only $625….add a condo fee of $150 and his total payment is $775.

Sounds pretty good doesn’t it?.......except one thing…..Joe’s debt-to-income ratio is 250%  ($125,000 / $50,000) - almost 100 points higher than the (already outrageous!) national average. 

Joe must be crazy.

Here is a more detailed breakdown of Joe’s monthly income and expenses. 

Income	(after tax)	3000
Expenses
mortgage		625
condo fee		125
utilities		150
property tax		100
house insurance		70
house up-keep		100
cell phone / cable / internet		165
car insure		125
car gas		200
car maintenance		100
food		300
entertainment		300
misc		200
clothing		100
Total		2660
Monthly Savings		340

 Yes, there are some fairly large assumptions and generalities, but if Joe keeps this up and invests his $340 per month at 8% interest, he will have a mortgage free condo and $322,000 in financial assets…all this with a debt-to-income ratio that started at 250%!

Yep, Joe is nuts.