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Financial Literacy

Financial Literacy

You Buy a Car

What does it cost?

Well, you paid $8,000 for a more-than-gently-used Ford Taurus. It’ll do. Relatively safe. It starts on cold mornings. But it’s a set of wheels, a means to freedom, your home away from home, and it has awesome cup holders. Big Gulp has a new home too.

You will drive this car for 4 years and then sell it, mostly for its parts value as an official heap for $4,000.

You’ll drive 10,000 miles a year in it – LOTS of driving for a kid – but you do the family shopping and schlepping of your siblings and are frankly happy to do so.

There are other costs to driving – obviously there’s gas. You get 20 miles per gallon on average in your Taurus, so on 10,000 miles and at an average of 4 bucks a gallon, you’ll consume 10,000 / 20 = 500 gallons of gas – at 4 bucks, that’s 2 grand a year… just in gas. You’re welcome, Saudi Arabia. Treat yourself to a new camel, on Shmoop.

Then there’s insurance. Long, hairy topic, which you can fall asleep reading here. Yours is relatively cheap and it costs you a grand a year – but God help you if you get dinged or, even worse, hit someone yourself. Your insurance won’t cover all that much and it’ll mean financial capital punishment if you get in an accident. Your vehicle won’t take anywhere near the hit that your checking account or permanent record will. But insurance was a grand a year.

There’s also maintenance – a radiator enema here, a flush there, new tires after a year two, an oil change, new wipers and other stuff. You get lucky and maintenance cost you just $500 a year – 40 bucks a month is pretty cheap in the scheme of things. Could have been much, much worse, in more ways than one. If you think it’s bad when your car blows a gasket, just wait until your dad gets home.

Let’s forget about the 4 parking tickets – or rather, let’s not tell mom and dad about ‘em. And that one speeding ticket – ouch. Killer for your insurance, so you absolutely have to go to traffic school to get it taken off of your record. That’s $500 more.

Do car washes count? Sure. You just HATE doing that yourself so you go to Manny’s and he covers it for $125 a year for 4 years or another $500 total (you kind of like being able to write funny pithy sayings in the dust on your car trunk anyway).

So let’s add all of this up:

$4,000 in losses from buying the car for $8,000 and selling for $4,000
$8,000 in gas at $2,000 a year times 4 years
$4,000 in insurance at $1,000 a year times 4 years
$2,000 in maintenance at $500 a year times 4 years
$500 for tickets
$500 for washings and those little doohickeys you like to hang from your rear view mirror
TOTAL: $19,000.

Yeah – WAAAAY more than the $4,000 you wanted to think you were spending on the car, or even the $8,000 you paid, thinking you’d have that car for 89 more years. You’re beginning to think the guy who came up with the phrase “Ford tough” was just plain full of it.

What’d that $19,000 get you, other than a sense of freedom, some great Saturday night dates, and a few other memories that’ll embrace (and haunt) you for decades?

Is it fair to think about “cost” as a “cost per day of owning the car even if you didn’t drive it that day?” Maybe.

Let’s see how that looks. You owned it 4 x 365 days (forget leap year; these are Shmoop-rough) – that is, you owned it 1,460 days. And you spent $19,000 on this car.

That’s a “cost” of lucky 13 bucks a day, roughly. A bit over 50 cents an hour, if you’re countin’. A good deal? Bad deal?

Maybe a better way would be cost per mile. That’s how the government and most employers think about reimbursing their employees for errands they run, anyway. So in this case, you drove 40,000 miles. A ton.

It cost you 19 grand – or 47.5 cents a mile.

We could go on with other things like cost per pick up and drop off, or cost per horn honk (you got a lot of usage out of this one), but you get the idea. Any way you cut it, the car is kind of expensive – and this was a cheap, used Taurus. Do the math on a Porsche and it’ll truly scare you.

Okay, we’ll scare you...

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