Everyone loves that new car smell.
The nice shiny exterior. The clean upholstered leather interior. You spend a lot of time in your car so you want it to be comfortable, and fast, and to be able to tow a trailer or caravan in case you need to. And the price of a new car these days is reasonable, isn't it?
Wrong!
Chances are your nice new car is costing you a lot more than you think. The National Roads and Motorists' Association (NRMA) has produced a simple to use online car operating cost calculator. The calculator makes a few basic assumptions. The calculations are for private ownership in New South Wales, based on an annual distance of 15,000 kilometres travelled over an ownership period of five years.
The formula takes into account the negotiated vehicle price, depreciation,
opportunity interest, registration, NRMA membership, maintenance and repairs, and fuel.
So if you have always wanted that BMW X5 you can plug in the details to see that it only costs you $2.21 per km to drive or around $636.78 per week. However whilst the calculator does include opportunity cost (the money you forgo by having $113800 tied up in your car rather than earning you around $5000 interest from the bank), when last checked it only included the opportunity cost of the depreciated amount, ie. if the the X5 is worth $80 000 after 5 years only $33 800 ($113 800 - $80 000) is used to calculate the lost interest. You can also enter the cost of insurance which is averaged out into the weekly costs but again the opportunity cost of the insurance is not calculated. So the running cost of $636.78 is probably a conservative estimate (unless you drive far less than the 15 000 km average).
$636.78 per week * 52 weeks = $33112 per annum.
As we have already discussed in the 4% rule. To fund this vehicle for the rest of your retirement you would need at least 25 * $33112 = $827814 in savings.
And this is if you had the cash on hand to buy the car without finance. Hopefully you already realise that you should never buy a car on finance if that is the only way you can afford it.
But not everyone wants to buy a BMW. A good family car would be fine. How about a good sized family sedan like the mazda 6. That's better...only $212.13 a week. A cost of $11030 a year.
$212.13 * 52 * 25 = $275 600 in savings.
The cheapest car? The Mitsubishi Mirage. $93.29 per week. $4851.08 a year. It requires an invested amount of $121 277.
For households with 2 cars you can double these figures.
Now that you know how much a new car costs, what can you do about it.
1) ride a bicycle or walk for short trips.
2) use public transport.
3) become a one car family (or 2 car family if you are currently a 3 car family).
4) use your car less so that you don't drive 15 000 km a year (consider moving closer to
work).
5) buy a motorcycle.
6) buy a used car.
7) buy a cheaper car than a BMW.
8) buy the car you want but realise that it is costing you your freedom.
The nice shiny exterior. The clean upholstered leather interior. You spend a lot of time in your car so you want it to be comfortable, and fast, and to be able to tow a trailer or caravan in case you need to. And the price of a new car these days is reasonable, isn't it?
Wrong!
Chances are your nice new car is costing you a lot more than you think. The National Roads and Motorists' Association (NRMA) has produced a simple to use online car operating cost calculator. The calculator makes a few basic assumptions. The calculations are for private ownership in New South Wales, based on an annual distance of 15,000 kilometres travelled over an ownership period of five years.
The formula takes into account the negotiated vehicle price, depreciation,
opportunity interest, registration, NRMA membership, maintenance and repairs, and fuel.
So if you have always wanted that BMW X5 you can plug in the details to see that it only costs you $2.21 per km to drive or around $636.78 per week. However whilst the calculator does include opportunity cost (the money you forgo by having $113800 tied up in your car rather than earning you around $5000 interest from the bank), when last checked it only included the opportunity cost of the depreciated amount, ie. if the the X5 is worth $80 000 after 5 years only $33 800 ($113 800 - $80 000) is used to calculate the lost interest. You can also enter the cost of insurance which is averaged out into the weekly costs but again the opportunity cost of the insurance is not calculated. So the running cost of $636.78 is probably a conservative estimate (unless you drive far less than the 15 000 km average).
$636.78 per week * 52 weeks = $33112 per annum.
As we have already discussed in the 4% rule. To fund this vehicle for the rest of your retirement you would need at least 25 * $33112 = $827814 in savings.
And this is if you had the cash on hand to buy the car without finance. Hopefully you already realise that you should never buy a car on finance if that is the only way you can afford it.
But not everyone wants to buy a BMW. A good family car would be fine. How about a good sized family sedan like the mazda 6. That's better...only $212.13 a week. A cost of $11030 a year.
$212.13 * 52 * 25 = $275 600 in savings.
The cheapest car? The Mitsubishi Mirage. $93.29 per week. $4851.08 a year. It requires an invested amount of $121 277.
For households with 2 cars you can double these figures.
Now that you know how much a new car costs, what can you do about it.
1) ride a bicycle or walk for short trips.
2) use public transport.
3) become a one car family (or 2 car family if you are currently a 3 car family).
4) use your car less so that you don't drive 15 000 km a year (consider moving closer to
work).
5) buy a motorcycle.
6) buy a used car.
7) buy a cheaper car than a BMW.
8) buy the car you want but realise that it is costing you your freedom.