The general advice to anyone starting to optimism their life is to cut out spending money on coffee and other daily expenses that are not providing true value to their life. I’ve said it multiple times. But in reality, you should start by optimizing the big expenses first. And the two biggest expenses in your life are housing and transportation- if you own a car.
To that end, I am going to look at how expensive it is to own and maintain an average car. You may think that it would be easy to figure out how expensive car ownership is. Work out how many kilometres per litre of petrol your car uses, and the cost of petrol, and how far you drive. Easy right.
It’s more expensive than you think
Working out the cost of your car is more complicated than just the cost of fuel and how efficient your car is. There are many other expenses that you just don’t see when you are filling up at the pump. And if these expenses were added to the price of petrol at the pump, you might think twice before taking that weekend drive, or the daily commute to work.
Let’s work through a hypothetical example of what it might cost to own a car per year. First off, there is the price of the car itself.
Cost of your car in New Zealand
The price of the actual car is one of the bigger “one-off” expenses. The price of a car can vary greatly- from a $1000 beater to a $100’s of thousand. Either way, it’s generally a better idea to get a second-hand car as it will generally devalue less than a brand new car.
Let’s say that you buy a $ 20,000-second hand car, which is reasonably efficient on petrol.
I know this is an expensive car for many people, especially when the average annual personal income sits at $51,527. A $20,000 car would be around 40% of an average income. Because it’s such a large figure, many people buy cars on finance. This will make the cost even higher.
The interest rate of car finance can be anywhere from 8% to over 20%. Let’s work with an interest rate of 14% in our scenario. Over a 5 year term this you will be paying $107 per week, which works out to a total of $27,820.
Now there is also an opportunity cost in sinking that money into a car rather than investing instead. I won’t consider this here, as having a car generally allows people to hold down a job. This is one of the hidden costs of employment that I talked about before.
I’m also going to assume that after 100k on the clock of your car you will end up getting tired of it and upgrade to a new one. In all honesty, you could easily get 200k on the clock but work with me here.
Cost of car: $27,820 per 100k km
Yearly Maintenance
Every year your car will need maintenance. Be it a routine oil change and service, or new wiper blades, tires, brake pads, brake rotors. The list goes on. An average service can cost between $80 to $240, with parts and labour on top. Let’s assume it will cost you around $600 per year to maintain your car. Some years the maintenance bill could be as low as $80, and in other years it could be in the thousands.
Cost of maintenance: $600 per year
Insurance
Having car insurance is not mandatory in NZ, although you should really get it and be a good citizen. In my short time on this earth, I have been rear-ended by two uninsured drivers already.
One young driver had only just got his license and was driving his newly acquired second-hand car home. I stopped at a pedestrian crossing to let a someone cross- as you are supposed to, and he drove straight into the back of my car. His car was a write-off. He was uninsured.
Luckily, my insurance had a clause that would cover uninsured drivers for repairs up to a value of $3000, provided the other driver claimed responsibility. The uninsured driver had written off his $1500 car, and now my insurance company was going after him for the repair of my car.
The cost of insurance can vary depending on age and sex. Being a “youngish” male, I have generally paid higher insurance premiums compared to my female friends. Third-party can be a couple hundred a year, while full cover can be in the thousands. From my research Cove, an NZ insurance company is one of the best-priced insurers.
I’m going to use a figure published by the AA of $780 per year.
Cost of Insurance: $780 per year
Registration
Every year you will need to get your car licensed (registration). Technically you only pay registration to get your vehicle on the road for the first time, after which you will need to pay an annual licencing fee, which we call registration. The cost will depend on the size of your engine in your car and is either $202.81 or $233.86.
Cost of Registration: $233.86 per year
Warrant of Fitness
A warrant of fitness is required for your car every year (or twice a year if your car was made before 2000). This inspection will check your tires condition, brakes, structural condition, lights, and other essential items on your car. Generally, it will cost around $49 per
Cost of Warrant: $49 per year
Tires
Tires are one of the most expensive perishables on a car. And the more expensive the car, the more expensive the tires will be. I’ve excluded this from the maintenance section as they are replaced on a more regular bias. Tires for SUVs, Utes, and cars with large rims can be in the $300-600 per tire. Ouch. Let’s say that the car you bought has a reasonably priced tire on it. $200 per tire with a lifetime of 40,000 km.
Cost of Tires: $200 every 10,000 km
Parking + Toll roads + Tickets
Parking, toll costs, and traffic tickets are all car expenses that get neglected when looking at the cost of car ownership. Depending on where you park for work, and if you live near toll roads, or have a lead foot, will depend on how much this will set you back. It could be in the hundreds if you need to pay for parking each day.
Cost of Parking, Tolls, and Tickets: $300 per year
Petrol
The cost of petrol is normally the cost associated with car ownership that everyone talks about. Currently, petrol is sitting around $2.00 a litre. If you drive around 10,000 km per year you can be expected to pay around $2000 per year if your car gets an average efficient of 10km per litre.
Some cars get more than that, and some cars get less than that. I used the energy-wise calculation to estimate the cost of a 3.5-star car
Cost of Petrol: $2000 per year
Externalized Costs
The other externalized cost that isn’t counted in car ownership are things like pollution, poorer health (you could be cycling to work, or walking more), and local and government taxes for new roads, and your time being stuck in traffic. I haven’t added these into the cost of ownership as I couldn’t find any reasonable accurate data for New Zealand.
The Cost of Owning a Car In NZ
Let’s add all of these costs together and see what it costs you to own a reasonably efficient car, driving 10,000 km a year.
| Category | Annual Cost |
|---|---|
| Car | $2,782 |
| Maintenance | $600 |
| Insurance | $780 |
| Registration | $234 |
| Warrant | $49 |
| Tires | $200 |
| Parking, Tolls, and Tickets | $300 |
| Petrol | $2,000 |
| Total | $6,945 |
It will cost you about $7,000 per year to own your car. And only around 30% of the expenses you pay are fuel costs. Think about it this way. Next time you go to the petrol station and fill up imagine that you are paying $6.70 per litre. Because that is what you are paying when you consider all the other costs of owning your car. Your 50 litre tank will cost you $335 to fill. Consider that next time you want to go for a drive
The Real Cost- 2012-2018 Data
It’s nice to run through a hypothetical situation and see how much it cost to own a car. But is that actually what it costs?
Well, I’ve been tracking my expenses since 2012. So I went back and looked at the actual cost of owning my car. I haven’t separated the costs as much as my example above- so the maintenance category contains the cost of tires, maintenance, registration, and warrants. My car costs are tabulated below.
| Year | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|
| Car Cost | $- | $- | $11750 | $- | $- | $- | $- |
| Maintenance | $856 | $150 | $2619 | $429 | $2068 | $2448 | $1266 |
| Insurance | $1521 | $1451 | $1534 | $1938 | $883 | $790 | $760 |
| Other Costs | $- | $557 | $719 | $468 | $198 | $- | $- |
| Petrol | $2863 | $2354 | $3331 | $2756 | $3783 | $3637 | $3972 |
| Total | $5240 | $4512 | $19953 | $5590 | $6882 | $6875 | $5958 |
| Kilometers | 18303 | 13201 | 13709 | 11913 | 16049 | 9544 | 11338 |
| $ per km | $0.29 | $0.34 | $1.46 | $0.47 | $0.43 | $0.72 | $0.53 |
In 2014, I purchased a new car, and the one expense I didn’t include is the money I received when I sold my car. It was a Toyota Camry Wagon that I had privately imported costing a total of $6500 with 70k on the clock. I sold it 5 years later with 190k on the clock for $6000. Always buy a Toyota!
My total and annualized car expenses are tabulated below;
| Category | Total | Average Per Year |
|---|---|---|
| Car Cost | $11750 | $1679 |
| Maintenance | $9,796 | $1399 |
| Insurance | $8828 | $1,261 |
| Other Costs | $1942 | $277 |
| Petrol | $22695 | $3242 |
| Total | $55011 | $7859 |
| Kilometers | 94,057 km | 13436 km |
| $ per km | $0.58 | $0.58 |
If you work out how much it cost per 10,000 km, so it is comparable to our scenario above, it has cost me on average $5800 per year. This is slightly cheaper than the example above, which is probably due to doing more kilometers. The cost per kilometer come down as you travel more.
Since I drive more than our example, it’s actually cost me $11,002 per year. That’s a lot of money!
How to Minimize You Car Costs in New Zealand
1. Live closer to work
The closer you live to work the less you will have to pay on variable costs like fuel and tires, but the cost of insurance and registration will remain the same.
Not only will you save money, but you will also save time travelling to work. (Saving time going to and from work actually increases your hourly rate, after all, you wouldn’t be travelling to work if you didn’t need to). You spend most of your week at work, it makes sense to live nearby.
2. Car-pool, Walk, Bike
If you live close enough to work you could consider walking or biking instead of driving. If you live close enough to other amenities you might be able to get rid of the car completely.
Currently, I’ve been super lazy. I only live 6km away from work. That daily trip is costing me $7 a day- using the cost of $0.58 per kilometre I worked out above. I am currently looking at purchasing a bike so I can ride to work instead. Although it’s all a bit overwhelming having never purchased a bike before- they’ve become so flash.
3. Get Better Finance on your Car
Or better yet, pay in cash.
Paying cash for a car isn’t always an option for everyone. In some instances, you will need a car to earn money. And in this case, it might be essential to get a loan for the car. But buy a car within your means. Don’t go an buy a $20k car when you only earn 50k a year. Buy a reasonably good second-hand Japanese car.
When it comes to your loan, you will want to pay it off as fast as you can. If And you should try to get a good interest rate. You could try getting finance from a peer to peer lender such as lending crowd, or borrow on your mortgage to lower the cost of interest on the loan.
The Cost of Owning a Car
The cost of car ownership is much more than the cost of fuel at the gas station. From my data, it’s costing me $21 per day to keep my car. That’s $7,860 per year. And $98850 per decade invested at 5% return.
So, do you know the true cost of your car?
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