The Money Club for Young Adults
Vehicle Ownership
Vehicle purchases can be very complicated. For some people buying a vehicle is steeped in emotion. They have been bitten by the bug and for them a vehicle is much more than just transportation.
We, however, are going to look at vehicle ownership solely from a financial perspective. And to put it bluntly, vehicles are a wealth destroyer. Decisions you make about vehicle ownership will impact your financial future in a major way. This is because transportation is the second largest expenditure for the typical family (housing is #1).
Vehicles are very expensive to own. CAA estimates yearly ownership costs for an average compact car is $8,600 per year (truck is +$13,000). Canadians under estimate the cost of owning a vehicle by about $4,000.
You get wealthy by owning assets that go up in value every year. Vehicles do the opposite; they drop in value a lot every year (this is called depreciation). Vehicles are also very expensive to operate (financing, maintenance, insurance, gas and parking).
The longer you can put of vehicle ownership the better off you will be financially. By a lot!
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Reliable form of transportation is essential in order for most people to produce an income.
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Estimate the annual cost to drive and operate a vehicle - CAA
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Average yearly compact car cost
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$12,100 (2015 Honda Civic)
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Gas $2,000
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Maintenance $1,500
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Depreciation $2,700
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Insurance $3,000
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Financing $2,900
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Annual cost for a bus pass?
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Got to have a vehicle?
Exercise: How Much Does it Cost?
Estimate what it costs to operate a vehicle for a year. How does your estimate compare to CAA?
What is depreciation?
Often overlooked, depreciation is the largest expense when it comes to operating and ownership costs. Depreciation is the reduction in value of a vehicle incurred during the period of ownership. The annual depreciation is estimated by looking at the difference between the current market price of a vehicle and the forecasted value of the vehicle, which is provided by Canadian Black Book.
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Tax Note: the $8,600 it costs each year to own the average compact car is after tax money. Most families have a marginal tax rate of at least 35%; to spend $8,600 they need to earn $13,200. This is the pre-tax cost to own a car that will be paid every year.
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Most families own two vehicles which puts the pre tax cost at over $26,400 per year.
Understanding Gas Prices
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Why are gas prices in Vancouver the highest in Canada? Click here to read Vancouver Sun article from April 2019
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"When you look at the totality of gas taxes now in B.C., no small amount can be easily or cavalierly dismissed. You're paying over 52 cents a litre in taxes to the federal, provincial, carbon and TransLink taxes," he said. "That puts you at variance with most other provinces by as much as 18 to 20 cents a litre more." D McTeague, analyst at GasBuddy.com Click here to read full article
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Save at the pump by always knowing what station in your area has the cheapest gas price/litre: gasbuddy.com
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How much does the gas used in that trip cost? Fuel cost calculator: click here