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What’s Your Car Really Costing You?

For many of us in the United States, owning a car is a necessity. We need a car to get to work. And we need to work so we can make mortgage payments, save for retirement, and pay for all those other expenses in between.

But those wheels come at a cost. And the real cost of owning a car is a lot higher than you think. Use our car affordability calculator to find out what you can afford.

According to the U.S. Bureau of Labor Statistics, transportation costs were the second largest household expense in America in 2008 after housing. Those costs comprised 17% of annual household income. In comparison, we spent 5.9% of our annual income on healthcare and 12.8% on food.

That’s right: we spend more money on cars than we do on food.

How do transportation costs add up so quickly? To find out, consider all of the following costs associated with owning a car:

  • Initial purchase price. The cost of vehicle (cash paid or the total of lease or purchase payments, including finance charges) divided by the number of years you own the car.
  • Sales tax. Divided by the number of years you own the car.
  • Gas
  • Insurance
  • Maintenance and repairs
  • Registration and annual excise taxes
  • Parking and tolls

Vehicle Cost

Of course, cars aren’t cheap. The initial price of your car is a significant expense, even if you spread it over many years. And if you finance your car, you’re also paying interest that often adds up to thousands of dollars over the life of the loan. If you own your car, you can sell or donate it someday, putting some cash back in your pocket. If you lease, your payments are gone—just the cost of driving that car for that month.

Too often, however, car buyers making their decision based upon looking at a monthly payment and saying “I can afford that.” Unfortunately, those buyers aren’t taking into account taxes, gas, parking, insurance, and maintenance. In an ideal world, we could see the true annual cost of owning a particular car. We might make very different decisions.

As an example, if you purchased a car, with cash, for $15,000 and kept it for six years, it would cost $2,500 a year. If you could sell it at the end for $4,000, you reduce the cost to $1,833 a year.

Insurance and Taxes

Unless you’re lucky enough to live in state without sales tax, tack another five percent or more to the purchase price of your car. That’s $750 on our $15,000 car, or $125 a year. And then there are registration fees and annual excise taxes—often several hundred dollars a year on newer vehicles. For our example, let’s say $50 for registration and $200 a year in excise taxes.

Finally, there’s insurance, which is no small cost. Most states require some form of insurance and every sane and responsible driver should have good coverage. It is really important to compare auto insurance quotes from multiple companies when you’re choosing your carrier– it’s not uncommon to see a difference of up to $500 between carriers for the same coverage! According to, the 2010 average annual auto insurance premium is $1,533. If you’re a good driver, hopefully yours is lower. Still, that’s a big chunk of change.

Gas and Maintenance

If you keep track of your car’s fuel economy, it’s fairly easy to figure out how much gas will cost you. Here’s a down and dirty example: If you drive 12,000 miles a year, get an average of 30 mpg, and pay an average of $2.75 per gallon, your annual fuel cost is $1,100.

Maintenance is trickier. You can count on spending $100 or so a year on oil changes, but what about other routine maintenance and unplanned repairs?

According to, the lowest-maintenance new cars—like the Toyota Yaris—cost just under $2,500 to maintain over the first five years of ownership. Of course, the costs just go up from there (depending on the vehicle and, of course, with time).

For the average vehicle that’s a few years old, let’s use $800 as an average for annual maintenance costs. You can, of course, save money on this figure by being good about preventative maintenance and finding a reliable independent mechanic who costs less than the dealers.

The (Shocking) Total

All things considered, our $15,000 car that we keep for six years and later sell for $4,000 costs us $5,641 a year. And that doesn’t include parking, tolls, inspections, or car washes. And at $15k, this is a modest car. Most of today’s large trucks, SUVs, and “entry-level” luxury cars sell for well over $30k.

More than we like to admit, cars are money sucks. When you buy a car, you are going to lose money no matter how you spin it. To reduce the real cost of owning your car, buy used, get the best price you can, pay cash, and take care of your car and keep good maintenance records (including oil changes, tire rotations, etc.) so you can resell it for as much as you can.

Of course, if you can forgo a car altogether and just take the bus or bike to work, you’ll save a lot more of that $5,641, so more power to you!

Published or updated on July 26, 2010

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  1. Moneyedup says:

    It is frightening to think about how we spend more money on cars than food. I take public transit to work everyday, mainly to avoid heavy traffic. It doesn’t really save me a whole lot of money, since I do have a car and am paying insurance. The money I would be spending on gas goes towards a transit pass and I get to avoid being stuck in traffic by taking the subway.

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