Podcast #21: How Much Is My Car Costing Me, Really??

01/29/17 • 22 min

Informed Decisions Independent Financial Planning & Money Podcast

Hi, and thanks for popping in to listen to this weeks' Episode, which promises to be an interesting one for anyone who owns a car (so that represents the vast majority of us!). If you are new here please do check out this page, which will tell you a little about why this project exists and what it's aiming to do for you. Episode 21 is here:

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While some would argue that the cost of running a car hardly qualifies as a Financial Planning topic, I would beg to differ. Seeing as many of us possess one for the duration of our adult lives our choice of car represents a significant life long investment. What I am hoping to uncover is exactly how much they cost and what if any differences there are in buying a 'newish' car versus an older car!

Some of you at this point will hit the red 'x' in the top right hand corner, you like your cars, you don't care what they cost you, provided you can afford to have a 'nice' car you will continue to do so irrespective of the financial costs. I respect that, hit the red 'x', but might do you no harm to see what it is actually costing!

In the interest of being up front I will state that even before we look at the figures I have always had a strong bias towards owning older cars (6-10 years old) where the largest depreciation costs have been absorbed by a previous owner, however I am always open to correction, so lets see which option is the more informed from a financial perspective!

Assumptions:

For the purpose of this exercise I based my findings on 2 family sized cars. The 'newish' car is a 2013 Volkswagen Passat 1.6 Diesel from a dealer, with 62k miles on the clock costing €20,450- listed on Carzone.ie at time of the research.

The 'old' car for the purposes of this exercise is a 2007 Ford Mondeo, 1.8 Diesel, 90k miles on the clock costing €4,700 from a dealer, again it's listed on Carzone.ie at time of research.

Our exercise will assume we hold the car for 3 years, before changing it again for another car. Mileage assumed at 13,000 miles per annum.

The Cost of Owning a 'Newish' Car for 3 years:

Depreciation: €12,450 - Buy it for €20,450. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €8,000. Irrespective of selling it privately or trading it in this is the approximate value achieved (even VW which historically hold value reasonably well).
Fuel Cost: €4,029 - This modern car will give approximately 55 miles per gallon on average. www.honestjohn.co.uk is a great website for honest mileage numbers. Using a diesel price of €1.25 per litre, and traveling 13,000 miles per annum, that's the cost over the 3 years!
Motor Tax: €570 - As a post-2008 car, with relatively low emissions of 109g/km motor tax will set ou back €190 per annum
Maintenance: €1,200 - This assumes carrying out 1 annual service and changing 2 tyres per annum, with no other major outlay on this relatively young car
Insurance: €1,800 - This one is a big variable dependent on the driver and his/her status and years of no claims bonus etc, however the same figure will be used on both examples
Total Cost = €20,049

The cost of having this car for the 3 years is over €20,000. With good fuel economy and low tax it still amounts to a fairly sizeable amount of cash! If we break that down annually it is €6,683. Per month that is €557. If you are on the higher tax bracket you need to earn €1,100 Gross Salary in order to pay for your car..........................If you earn €50,000 Gross, that is 1 week's work per month to pay for your car! Seems hefty, but lets now compare it to the alternative, a cheaper, less flashy, less efficient and perhaps less reliable motor!

Cost of owning an 'old' car:

Depreciation: €2,220 - Buy it for €4,700. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €2,500. Irrespective of selling it privately or trading it in this is the approximate value achieved.
Fuel Cost: €5,039 - This less modern car will give approximately 44 miles per gallon on average. Using the same diesel price of €1.25 per litre, and travelling 13,000 miles per annum, thats the cost over the 3 years for this car.
Motor Tax: €2019 - As a pre-2008 car, with a 1.8 litre engine you are in for a juicy €673 per year road tax, no avoiding it!
Maintenance: €2,400 - This assumes carrying out 1 annual service and changing 2 tyres per annum. In this instance we have included €300 per annum for ad-hoc repairs. While this could be quick a lot more or less on a car of this age and mileage this average is an industry accepted figure.
Insurance: €1,800 - Th...

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Assumptions:

The 'old' car for the purposes of this exercise is a 2007 Ford Mondeo, 1.8 Diesel, 90k miles on the clock costing €4,700 from a dealer, again it's listed on Carzone.ie at time of research.

Our exercise will assume we hold the car for 3 years, before changing it again for another car. Mileage assumed at 13,000 miles per annum.

The Cost of Owning a 'Newish' Car for 3 years:

Depreciation: €12,450 - Buy it for €20,450. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €8,000. Irrespective of selling it privately or trading it in this is the approximate value achieved (even VW which historically hold value reasonably well).
Fuel Cost: €4,029 - This modern car will give approximately 55 miles per gallon on average. www.honestjohn.co.uk is a great website for honest mileage numbers. Using a diesel price of €1.25 per litre, and traveling 13,000 miles per annum, that's the cost over the 3 years!
Motor Tax: €570 - As a post-2008 car, with relatively low emissions of 109g/km motor tax will set ou back €190 per annum
Maintenance: €1,200 - This assumes carrying out 1 annual service and changing 2 tyres per annum, with no other major outlay on this relatively young car
Insurance: €1,800 - This one is a big variable dependent on the driver and his/her status and years of no claims bonus etc, however the same figure will be used on both examples
Total Cost = €20,049

Cost of owning an 'old' car:

Depreciation: €2,220 - Buy it for €4,700. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €2,500. Irrespective of selling it privately or trading it in this is the approximate value achieved.
Fuel Cost: €5,039 - This less modern car will give approximately 44 miles per gallon on average. Using the same diesel price of €1.25 per litre, and travelling 13,000 miles per annum, thats the cost over the 3 years for this car.
Motor Tax: €2019 - As a pre-2008 car, with a 1.8 litre engine you are in for a juicy €673 per year road tax, no avoiding it!
Maintenance: €2,400 - This assumes carrying out 1 annual service and changing 2 tyres per annum. In this instance we have included €300 per annum for ad-hoc repairs. While this could be quick a lot more or less on a car of this age and mileage this average is an industry accepted figure.
Insurance: €1,800 - Th...

Previous Episode

Podcast #20: What is Income Protection & Should I Bother??

Hi again dear listener!

If you are new here, welcome! This is a great place to begin the journey if you are a new visitor.

This is the 2nd in our 'financial foundations' series, and will further explain one of the many protection options available to us all in today's market. For the first in this series we looked at the ins and outs of specified illness cover. Click here to listen.

Income Protection, also known in some quarters as Income Continuance, Income Insurance, Income Cover & Permanent Heath Insurance. Confused yet!!? I'm gonna stick with the label of Income Protection on this one, purely because that is what it is designed to do, protect your income if yours stops!

Before we get into the basics of this potential financial foundation lets picture the following. (Disclaimer: this might seem like an old insurance sales technique but bear with me!!).

Imagine for a second that you had a printer in the corner of your bedroom, every morning as you wake up you hear this printer printing out the equivalent of a day's wages for you. Because there is no such thing as work in this dream-land you survive on your printer's ability to print this money for you every morning. Having said that, like all printers on this planet yours is prone to breaking down occasionally, indeed it is also susceptible to breaking down permanently. If it does your income will stop, cease, finish. Bearing in mind it is your sole form of income would you insure this printer against such an incident, bearing in mind it is your sole form of income? If you woke up one morning and it was all flashing red lights would you feel it prudent to have a back-up plan to help pay the bills?

On the face of it it probably seems like pure gambling to not do so, yet the fact is that a huge percentage of us do not have such a plan in place. If we go back to the analogy of building a home on solid foundations, it would seem that doing so without a core foundation would be a risky approach. So why don't people have this protection in place? Personally I believe there are a few core reasons for that; cost, awareness and understanding of what it actually is! So here goes.............

What is it?

As already mentioned above, it is a type of protection which should pay you an income if you are medically unable to work for a minimum period of time due to an accident, illness or injury. As with the majority of income sources it is taxable. (You will note that this is quite different to Specified Illness Cover which pays you a lump sum (one-off) upon diagnosis of a certain type of illness, and not related to your ability to continue to work or not).

So its Sick Pay, right?

No! Typically 'sick pay' from an employer is paid for a set period of time, for example 2, 6, 12 months, after which time the benefit stops and you are on your own. Income Protection however is designed to continue to provide the income benefit until either a) you are deemed medically able to return to work or b) your protection plan reaches the end of its term, you can select usually between 55 and 65 years of age, at which point the benefit stops.

What about the State Disability Benefit?

Importantly receiving Income Protection, while it is a taxable income, does not immediately impact on your ability to receive your entitlement to State Benefits. The State 'Illness Benefit' is paid for a maximum of:

a) 2 years if you have at least 260 (5years) weeks reckonable social insurance contributions paid since you first started work

b) 1 year if you have between 104 and 259 weeks reckonable social insurance contributions* paid since you first started work

How much Income do I get from an Income Protection Plan?

Depends on how much your printer prints each morning! You can protect up to a max of 75% of your Gross Income with one of these plans. When/If you do claim as a result of being unable to work you make your claim, have it supported by medical evidence of you being unable to work, and the insurance company essentially become your employer, they deduct the tax payable and you get the Net Income paid into your bank account.

Example: You are 34 years of age, an Accountant, non-smoker. Your income is €50k. You put in place an Income Protection plan which will cover 75% of your income (€38k per annum benefit). You are married and 1 child. Your spouse is working also. If you were to become ill/injured/sick for a minimum of 1 week you could apply for State Disability Benefit, if successful it would provide in the region of €940 per month. (11k per annum).

How Much Does it Cost?

The above plan would cost in the region of €130 pe...

Next Episode

Podcast #22: WeSavvy CEO & Founder Hesus Inoma & The Future of Our Insurances

Hi,

A pretty influential insurance 'evangelist', Hesus Inoma is founder & CEO of WeSavvy, a Dublin-based start-up in the process of reshaping how we engage and manage our insurances.

If you have ever gotten a Health, Home or Motor Insurance renewal letter in the post or via email you will know it is not always the most rewarding experience!

WeSavvy is working to forge the future of how consumers interact with their Insurances, get rewarded and essentially earn cash-back by living healthy life-styles.

Thanks to Hesus for his time and sharing what he sees as the future of Insurance across the globe.

Thanks to you too for tuning-in!

Paddy Delaney.

You can join the WeSavvy movement at www.wesavvy.com