It’s time for your brain to come off that long extended holiday vacation and start thinking about what your car is really costing you.

Here’s one to think about – the actual cost or “sticker price” of a car has very little to do with how much that car will cost you.

Americans are challenged by finance (I’m not excluded).  Houses, and cars are all big investments, but do you sit down and calculate the real cost of ownership (COO) based on the purchase price, interest costs, insurance, maintenance, taxes, and whatever else adds to these ballooning expenses?  Based on the number of foreclosed houses and repossessed cars, I’m guessing a lot of people don’t do this.  To help you out, below is a guideline for helping you to estimate costs and here a quick graph of car costs:

Depreciation:

This accounts for approximately 50% of the COO.  To calculate depreciation, check out the residual value tool from Cars.com.  You might be shocked when you see that most of the depreciation happens in the first two years.  Remember that you can decide to save some money if you buy a car that is two years old rather than new off a car lot.

Fuel:

This cost is highly dependent on what car you buy and how much you drive, but in general this is about 25% of the COO.  Use this calculation to determine your fuel costs: (mile driven per year) ÷ (car miles per gallon) × (gas cost per gallon).  Check out my Gas Savings Calculator if you want to do a smash-up job of figuring out your true gas costs.

Interest:

Your interest costs on a car loan are usually about 10% or your total COO, but vary depending on your credit score, existing loans, and other seemingly esoteric criteria.  Don’t get caught up in interest compounding questions or the difference between and APR or APY.  Just multiply your loan interest rate times the loan amount to estimate your cost.  Interest rates on new cars are about 7%.

Insurance:

Just like your credit score and loan costs, insurance costs are idiosyncratic.  Insurance costs are another 10% of your total COO.  Don’t, don’t, don’t forget to call you insurance company to find out your insurance costs before buying a car.  NOT doing this could cost you over a thousand dollars per year because your insurance cost is partly based on how other people drive the same car – not you.

Maintenance & Repair:

You’re probably going to be surprised to find out that this cost is only about 5% of the COO.  Modern cars don’t break down that much and they are usually under warranty if they do break down.  The catch here is that maintenance and repair require your time, and that’s not in this calculation.  If you’re like me and hate spending money to repair cars and go to dealers, you may consider a Certified Pre-owned car like me.

Other Stuff:

There’s other stuff I’m not including because it’s relatively minor, but you may want to consider if you really want to do a great COO calculation.  Taxes and registration costs can add up over time.  Probably the most overlooked cost is the opportunity “cost” of an expensive car.  If you buy a $30,000 car instead of a $40,000 car, then you have $10,000 left over to invest and actually make money.  However, if you’re going to spend all your money no matter what your car costs, it’s probably best to leave this out.

Happy calculating!

Before you go looking for boxes to fill in so that you can see your gas savings – STOP – it’s an easy to use, but very advanced in what it can calculate, Excel spreadsheet and you will find it at the end of this post.

Most gas savings calculators only let you enter in an average fuel efficiency (MPG), and the number of miles you drive.  These two numbers are supposed to come up with your “gas savings” compared to a different car.  The gas calculator I created takes much more into consideration:

• Highway miles driven
• City miles driven
• Gas type (regular, mid-grade, premium)
• Expected time to own next car

If you drive more freeway miles than city miles or if your car takes premium gas and you’re comparing it to a car that uses regular gas, this gas savings calculator will really help you understand your “true” savings.  Better yet, you can take it with you!  You don’t need to be online to use the calculator since it is an Excel spreadsheet.

I created the spreadsheet out of my own interest in calculating my expected gas savings.  My old car was a 2000 Volkswagen Passat and I was looking to buy a newer Honda Civic because of the huge improvement in gas mileage (and reliability).  Using the gas calculator, I estimated that I would be saving $769 a year in gas, or $3,847 over the five years I expected to own the Honda.   Knowing that I was going to get that kind of gas savings made purchasing the Honda a really easy decision.

As I mentioned, I created this calculator out of my own interests, but if you think I can improve it in some way (or if you find a bug), please make a comment and let me know.  I’m also interested in what kinds of cars people are selling and buying in an effort to save on gas.  So, make a comment and share your gas savings experience.  Thanks!

Here’s the calculator: Carsala’s Gas Savings Calculator

In January 2005, the national average price for regular gas was $1.78. Only three and a half years later in July 2008, the same average was $4.11; a 130% increase in price. Politicians talk about national oil independence and more fuel efficient cars because they know that most Americans get a nervous feeling in their stomach every time they spend more than $50 at the corner gas station. However, are the politicians really living a life they advocate or are they not really paying attention to our national oil problems and gas prices in their personal lives? Is there a difference between Republicans and Democrats?

A lot of politicians are fickle about sharing information from their personal lives – even what kind of car they drive. Other politicians try to pretend they are “green” because they don’t personally drive a lot. In reality, they may be the worst offenders since the US government is notorious for driving politicians around in big black Chevrolet Suburbans that get 9 mpg in the city and 20 mpg on the highway. As an estimate for Republicans and Democrats in general, I looked at the 2008 presidential candidates because, after all, they represent the two parties and the media spotlight has been on them recently.
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Note that some republicans have more than one car. The “All Cars Average” is the CAFE average for all the cars a single candidate owns.
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Unfortunately, politicians are not as gas price conscious as we might wish. Democrats beat republicans by a whopping 20% margin due to a republican fleet of cars that on average gets less than 20 mpg! Democrats also seem to be having a love affair with the Ford/Mercury small hybrid SUV which greatly helps their average gas mileage. On average, republicans also own 1.7 cars per person compared to 1.0 cars per person for the democrats. The partisan differences can also be seen in McCain’s and Obama’s stance on fuel efficiency. McCain supports “enforcing existing standards” while Obama is more progressive and supports an “increase in fuel economy standards.” Despite the political rhetoric, it remains a little discouraging that politicians as a group don’t drive cars that meet the federal standard on fuel efficiency that Congress enforces and is called CAFE.

For those unfamiliar with CAFE, it stands for Corporate Average Fuel Economy. It is the stick that congress created and uses to get car manufacturers to make more fuel friendly vehicles. In 2008, the standard requires car manufacturers to have an entire fleet of vehicles that gets 24.8 mpg. According to the National Highway Traffic Safety Administration, in March 2008 the average for all new cars and trucks was 26.8.

CAFE averages are also not normal averages, they are what is called a harmonic average. Imagine this… pretend you have a gas guzzler that gets 10 mpg and a hybrid that gets 90 mpg. The mathematical average is 50 mpg. However, if I want to actually get 50 mpg, I need to drive my hybrid 90 miles for every 10 miles I drive my gas guzzler. Chances are nobody does that. It is more realistic is that I put equal mileage on both my cars. If I do that, I actually get an average of 18 mpg, and that is how CAFE calculates their averages (go here for how to actually calculate the averages).

So are there any bright spots in this seemingly contradictory world that politicians live in? Yes! The great news is that even though fuel efficiency standards have been very slow to increase, politicians of both parties are actively supporting alternative technologies that will either directly or peripherally result in better choices for us in the future. Some of those technologies are:

• Zero emission cars
• Biofuels
• Clean coal technologies
• Improved battery technologies
• Hybrid cars

Personally, I can’t wait until I can drive an advanced battery and biofuel powered hybrid that gets 150 mpg. Until that time, I’ll keep wishing gas prices were lower since my own CAFE average is 21.7 mpg. I guess I need to work on my personal fuel efficiency too. Calculate your CAFE average by starting at www.fueleconomy.gov and let me know how well you are doing!