Many of us are probably wondering what it really costs to own a car. Is it worth buying a car compared to going to the city or cycling to work? On many blogs it is discussed that you should get rid of your / a cars to cut down on expenses. Whether that’s right and how much you can save, I thought I would take a closer look at this post!
There is a lot of information to share online on the issue. Among other things, I found a compilation from Swedbank below where they look at the monthly cost of new car purchases in three different price categories. Including the depreciation of value, the monthly cost is between $ 3,700 to $ 4,940. It is a lot of money, but here everything is also included, even “garage, parking space” which maybe not everyone needs if you live in a villa. Removing it reduces the monthly cost by about $ 200. Still quite expensive. When I say “include everything” I have not included the financing of the car, whether it is in cash or with a car loan. Then more costs will be added.
The alternative to buying a new car is to buy a used car. The Consumer Agency has a good service called “car response”. There you can compare the monthly cost of different used cars. By searching for a car model, car responses show you the estimated costs. The good thing is that you can correct the expenses if you know that the car pulls a little more gas than what is on the page eg.
Here, too, the page gives us an estimated monthly cost and below I have compared three different sizes of Volvo cars from 2012.
Here, just as with Swedbank, all expenses except capital costs are included. However, we end up with a used car much lower compared to buying a new one (without including the cost of capital), about $ 2,500 a month for a Volvo S40 or Volvo V50.
Are there other alternatives to buying a new / used car? Yes it has become more and more popular with private leasing eg. In some occupations, there is also the opportunity to have a company car.
If we look at the figures we came to above at about $ 2,500 / month as the lowest, about $ 500 / month is added for a car loan of $ 100,000 with 6% interest. That would mean $ 3,000 / month and it turns out that private leasing costs about the same according to the motor men’s national association. The advantage of leasing is that your expenses are predictable, while you can use the used car for higher service costs if you are unlucky. However, it is very expensive to conclude a leasing agreement in advance which is a disadvantage of the lease.
With a company car, the owner is taxed with a benefit value. The benefit is added to your gross salary and you pay taxes on the extra amount. If you earn more than approx. $ 37,700 (layer limit for state income tax 2017), it will be 50% tax on the benefit value which I intend to use in my calculation. A new car that costs $ 250,000 will have a benefit value of $ 3,133 (can be calculated on the Swedish Tax Agency’s website), which will be a monthly cost of $ 1,567. There is an additional $ 750 in fuel per month ($ 9,000 / year) and we land at $ 2,326 / month. Service car thus becomes the cheapest alternative so far based on buying a car that costs $ 250,000. For example, if you buy a BMW that costs $ 400,000, the cost will be about $ 3,200 / month.
However, it can be easy to fool yourself with a company car. If instead of the company car you have the opportunity to get a salary increase of say 6,000 dollars instead you would have been able to finance a private car purchase yourself ($ 3,000 after tax) after tax. BUT on your extra $ 6,000 in salary you would also have received occupational pension provisions of about $ 2,000 (still based on earning over $ 37,700, the limit for 30% provision for occupational pension goes at $ 38,500). Therefore, it is not obvious in all cases that a company car is the best option.
Should you buy a car or not?
Since everyone cannot get a service car, I find that the lowest cost is around $ 3,000 / month for owning and driving a car. I’ve managed to find the alternative cost of cycling to work a little on google. The first year requires a starting cost of about $ 10,000 to buy bicycles, clothes, shoes etc. Then the annual cost is about $ 600 for changing the chain, cassette, wires, brake pads, lubricating oil etc. It is thus $ 50 / month (plus you get exercise). Bicycle is thus an unbeatable way to commute if you have the opportunity from both an economic and a health perspective.
If you can travel in the municipality, I calculate on a standard basis that a commuter card costs an average of $ 1,000.
|modal||Cost per month|
|Municipal (Bus / Train / Tram)||1 000kr|
Based on the financial analysis, the conclusion is quite simple, avoid car if you can.
BUT, there may be other values to having a car valued higher than the cost. I think primarily about saving time. My wife for example save an hour a day by driving a car compared to commuting communally (which she did for almost two years before we got a second car). For her and for us, it is worth so much that we get an hour more time together each day. Some families with children easily become “addicted” to having two cars so that both parents can pick up and leave at daycare, drive to activities, etc. In the end, it is a bit easy and convenient when you have a car, despite the cost.
The counter-argument to the above is to ask the question why those who have one or more cars do not settle closer to work, children’s daycare, etc. in order to get rid of the car/cars? I leave this question to later posts or if you have any thoughts, please feel free to share with you in the comments field.
What do you say? Should you do everything you can to get rid of your cars in order to get more money for savings eg Or can it be justified to have a car in some cases? Any thoughts or thoughts on how I calculated, please comment!