Having a car can be a significant benefit to an individual or family but can represent significant costs being incurred. A car can be one of the top five household expenditures but it is one where we can have and make some choices.
A car incurs an initial purchase cost, and an interest cost or opportunity cost depending on whether funds are borrowed or not. Petrol, servicing and repairs, insurance, and tax are ongoing running costs.
The first choice is whether to have a car or not. This choice can be impacted by where one lives, the availability of public transport, one’s time of life, and one’s lifestyle in terms of work place, leisure activities and holidays. As a student and young worker in a large city it didn’t occur to me to have a car because of the need to use public transport to get to college or work. Later on, it became a useful option when taking up a job outside of the big city.
The second choice is about a new or second-hand car. I was fortunate enough to have the use of company cars for about 30% of my working life – although the company car tax was a burden. My first company car was, however, second hand so I had the opportunity to experience that before I was able to pick a brand-new vehicle. When opting out of the company car situation I chose to buy outright a second-hand car of a lower specification as a conscious lifestyle choice. I wanted to step away from the big new company car in favour of a second-hand medium-sized car that I would be wholly responsible for. This was symbolic of career and job choices I was making at the time.
A third choice is about funding a car purchase. I have chosen to never borrow to buy a car. If I couldn’t afford a car then I wouldn’t have one was my view at the time. Then later as mentioned I bought a second-hand car outright. Later as that car approached a mileage of one hundred-thousand I opted to buy outright a brand-new car of similar or slightly higher specification. This was a conscious lifestyle choice again and reflected the time of life I had reached. A key follow-up decision from this was to continue to run this car which I have now had for over fourteen years and over ninety-four thousand miles.
A significant cost to having a car is depreciation but by running a car for longer, even if bought from new, that cost can be brought lower as an annual cost. The same is true of any interest costs. I have not really considered the opportunity costs of a car purchase, i.e. could I have saved and invested the purchase cost and earned a return of 2% or 8% per annum from that. If one considers that then it may act as a further pause for thought.
There are some steps to take to minimise running costs. I always consider insurance costs via a comparison website to ensure that these costs are kept as low as possible. I have maintained membership of a lower cost rescue service and also check that on a comparison website. I have chosen to have car services, MOT’s and most repairs at a franchised dealer and whilst that has proved expensive at times, I am not disappointed with that approach. I have at times referred to websites that advise on the best local petrol prices but have generally opted for what is a convenient location.
A key choice on buying a car is of the brand and class of car. After some early ideas of having a big-name brand I have preferred to go for lesser name brands that have a reputation for reliability. Having had larger family cars as company cars I have opted for medium family cars when purchasing my own car. One needs to check the storage capacity and the people carrying capacity, which were mostly the same! One helpful thought on this is that our smaller cars have been easier to park.
In conclusion I would say that car choices are a part of one’s lifestyle choices. I have chosen to have a car (and a good one) but not an over-expensive ostentatious car. I have chosen cars that have facilitated and not conflicted with my chosen aim of financial security leading to financial independence.
I can share some of the financial numbers that measure my choices:
Costs per year: Purchase cost £949 (so far), Petrol £912, Services £547, Insurance £280, Tax £163. Total £2,851.