Budgeting for the unavoidable costs of car ownership
So you have sat down and calculated your budget to purchase a new, or new-to-you vehicle. You know how much you can afford for a monthly payment and the maximum you are looking to spend total on your new vehicle. Excellent! But, what about the other expenses that come with car ownership?
There are a number of unavoidable expenses that come with car ownership on a regular schedule. If you don’t know the cost of these expenses before hand, and budget accordingly, you may come to find you can’t actually afford the vehicle you picked out. And no one wants that!
Unavoidable Vehicle Expenses
It’s obvious you’ll need fuel to drive your vehicle, but how much fuel and how frequently you’ll be visiting the pump is a different story. Knowing in advance the fuel efficiency of the vehicle you are planning to buy will save you some shock when you go to fill up. For instance, knowing that larger vehicles, like SUVs and pickup trucks, tend to be more expensive, while smaller cars like hatchbacks and sedans tend to be cheaper. However, it’s not just about the type of vehicle it’s also about the engine size, tires and tank size. For example, you can find a large SUV that has a small tank is a frequent flyer at the local station. Or that truck with the fancy mudding tires could guzzle it up!
GasBuddy.com says the average Canadian drives 15,200 kilometres each year, and vehicles have and average fuel economy of 9.8 litres per 100 kilometres, it is estimated Canadians spend upwards of $2,000 each year on fuel. Fuel is the second-biggest vehicle ownership expense (behind depreciation), accounting for 24 per cent over five years on average.
While things like prepaid maintenance plans and extended warranties may help you cover maintenance cost for the first while of ownership, it is a cost that will eventually, or immediately depending on what warranty is left on the vehicle, land in your pocket. It is estimated that Canadians pay $796 for vehicle maintenance each year on average. Again, the type of vehicle you drive can increase or decrease this expense… larger vehicles require more oil and diesel vehicles require different maintenance products all together.
New vehicles come with a manufacturers warranty for mechanical breakdowns. Every manufacturer has different time and distance measures for their warranties. Ensure to find out exactly how much warranty is available, after the warranty runs out, you will be responsible for repairs out of pocket. Ask about extended warranty options to help you cover the cost of any unexpected repairs after the manufacturers warranty has expired.
While tires are not a monthly cost, buying winter tires, or a new of summer tires can be shocking when you get to the register. On average you change the tires every three to six years or when your tread depth is low, between 3-5/32nds of an inch, and switch between summer and winter sets each year. Using winter tires can also extend the life of your summer tires as they will wear less with less use. Costs can range from $100 per tire to $400 per tire and up, not including the mount and balancing charges. Specialty tires for off-roading or racing will also cost more. As mentioned above, the tire style can also effect fuel costs… big bulky tires take more fuel to roll’em.
Keep an eye on your tire tread, to make sure they have not worn away sooner than planned. When shopping for new tires, get quotes from multiple shops to ensure you are getting the best price.
It is illegal to drive without insurance in Canada and that means another expense to add to your monthly budget. Ontario and Alberta have the highest insurance rates in the country. According to GasBuddy.com, Ontario takes the first spot, boasting an average annual rate of $1,878. Alberta is not too far behind, with the average resident paying $1,476 per year.
There are a number of factors that go into calculating insurance costs; the type of car you drive, age, driving record, length of time you have been driving can all be a benefit or add to your costs. Research beforehand by reviewing this list of the most affordable to least affordable vehicles to ensure on the Insurance Bureau of Canada’s website HERE.
Some insurance companies will have monthly payments for insurance, while others will ask for the entire year’s payment all at once.
6. License and Registration
License and registration fees are relatively insignificant when compared to everything else on this list, but they are worth including in your budget. Driver’s licenses in Alberta are done in 5-year terms at the cost of $93 every 5 years. The cost of registration in Alberta is $84.45 for one year and $159.45 for two years.
FYI, any unpaid tickets will have to be paid at registries before you can renew your plates or license.
Calculating the Total Cost of Ownership
To make sure you know exactly how much you will be spending on your vehicle, we recommend calculating your total monthly and yearly expenses.
Your monthly budget should account for fuel, insurance and financing. Figure how much each of them will cost you per month and add them up. The resulting value should be your monthly vehicle budget.
After that, find out how much insurance, maintenance, tires, and licensing/registration will cost you annually and add them up along with your monthly totals. The resulting amount is what you need to make room for in your annual budget.
Monthly Cost Example for small hatchback
Financing: $130 biweekly = $260/month
Fuel: $40/week = $160/month
Yearly Cost Example
Tires: $1000 (including mount and balance, rotation and alignment)
Broken Down Monthly: $165
Plus Average Monthly Expenditures: $570
TOTAL MONTHLY COST $735
We suggest finding out your monthly and yearly budget for all the vehicles on your shortlist, so you are prepared for car ownership.