fbpx
car maintenance budgeting, budgeting for car maintenance, car maintenance expenses

How much to budget for auto maintenance

car accident
photo credit: flickr.com/27248028@N02

So, you own a car.

You’ve heard that sometimes these things don’t run in perfect condition forever.  Go figure.  So how much should you budget for auto maintenance?

The answer is: about 15% of your income.

So how much should you budget? If you make more money you could certainly spend more, but I suggest prioritizing financial independence over bonus cars. Certainly your car budget shouldn’t exceed 15% of your income. I would recommend also checking out what vouchers you can get online to save you extra when you are purchasing basics like oil. Companies like Halfords often have many deals view them here.


Stuff Everyone Needs

As a rule of thumb you should count on changing your oil one to three times per year – you can do this this yourself to save money.  This usually sets me back roughly $40.  Every five years or so you should probably replace your tires, this sets me back roughly $500.  Buy good tires.  They’re worth the cost.  Cheap tires just need to get replaced more often.  In this case, I recommend Michelin’s.  There are more incidentals, like coolant, fuel filters, and so on, but I think it’s often easiest to take a look at your spending on maintenance over the last 5 years and average it.  All in all I figure about $50 per month ought to be about right, based on my average spending.

Stuff that depends

Additionally, you’ll need to set aside money for repairs as well as routine maintenance.  This is a little trickier, as you don’t know in advance what the repairs will be or what they will cost.  There are basically two components to saving for this: possible accidents, which you may have insurance for, and part failure, which generally is not covered by insurance.

Accidents

You have two options here.  Either carry comprehensive insurance, so that if your car is damaged you need only pay the deductible, or self-insure.  The rule of thumb that I use is simply, could I cover this unexpected expense without causing a significant financial issue, ie having to take a payday loan, or end up paying interest on credit cards.

This means I don’t carry comprehensive insurance for my car.  I have a cheap car, an emergency fund, and a high savings rate.  If any of these weren’t true I’d strongly consider comprehensive insurance.  If the car isn’t cheap, then replacing it at a moments notice is hard.  If you don’t have an emergency fund, you don’t have money to replace it.  If you don’t have a high savings rate you don’t have the capability of replenishing that emergency fund.

In order to make sure that I’m setting aside the right amount of money month-to-month in case of an accident I simply get a comprehensive insurance quote and set that money aside rather than purchasing the insurance.  Yes, that does mean that month-to-month I don’t come out ahead of owning insurance, but in the long run the expected gross profit will accrue to me rather than the insurance company, for my car this works out to be about $40 per month.

Part Failure

If you have a warranty on your car you might not need to worry too much about much of this for the first few years.  That being said, if you have an inexpensive used car you need to count on making the occasional repair.  As a rule of thumb I figure that the expected repair cost annually is half of the depreciation.  Another rule of thumb is that a car loses 25% of its value annually to depreciation.  Therefore, if you have a $6000 car, then the depreciation is about $1200 for this year.  Half of that would be $50 per month.

You can get a reasonable guess of the depreciation of your car by going to the Kelly blue book calculator to get the current value of your car.  Then use the calculator again, only change the model year and the mileage so that the car is 1 year older.  The difference should be a reasonable estimate of your car’s depreciation.

For example, my car from 2008 with 80,000 miles on it is worth $3000.  I go ahead and check the blue book value for my model of car from 2007 with 90,000 miles on it.  The calculator gives me: $2500.  Therefore, I expect to lose $500 to depreciation over the course of the next 12 months.  I therefore set aside $20 per month for repairs.

Adding it up

Altogether I budget $110 in maintenance a month for my car.  I also budget the amount of depreciation I expect from my car, that way I’ll have already budgeted the replacement car on a month to month basis when it comes time to replace my old car.

Monthly costs:
 
Oil Change: $10  (3 times a year at $40 per pop)
Collision: $40
Part failure: $20
Tires: $40 (go with Costco)
Total Maintenance: $110
Gas: $50
Depreciation: $40
Liability Insurance: $50
Total: $250

For me the total monthly car budget adds up to $250 include gas, insurance, depreciation*, and maintenance.  This is the third biggest line item on my budget, and it’s one that it pays to keep a careful eye on, it’s less than 10% of my take home pay.

So how much should you budget? If you make more money you could certainly spend more, but I suggest prioritizing financial independence over bonus cars.  Certainly your car budget shouldn’t exceed 15% of your income.

*A rant on depreciation

Many people will ignore depreciation because it’s not a cash expense.  This is bonkers. Depreciation is a real cost.  You have a net worth, and every month it goes down by an amount equal to depreciation. In order for you to keep your net worth flat, you need to put the same number of dollars into a savings account to keep your net worth flat.

Alternatively, look at it this way.  If you don’t budget depreciation, how does the cost of your car get put into your budget?  If you pay cash for a car you probably aren’t just taking one months worth of excess cash to pay for a car.  (If you can do that, great! But the situation is atypical.)  That means that you’re going to blow up the budget for one month (the month you replace your car) in a weird way.  This will result in significantly overestimating your savings rate! If you get nothing else out of this article.  Budget the depreciation of your car.

An exception to this is that, if you have a car payment you can budget the depreciation plus the interest in the car payment or the car payment!  If you budget for both depreciation and the car payment you end up double counting.

3 thoughts on “How much to budget for auto maintenance”

  1. Erin @ Stay at Home Yogi

    This is a great, informative post! I try to budget for car maintenance and repairs monthly, but my budget is still really tight as I fight to get out of debt so the full amount of money is not always there when needed. Still something to work towards though! Thanks for the great info! 🙂

  2. I question the maintenance costs being half the depreciation. I have a brand-new car $18,000 car, and while it may depreciate a lot in the first few years, my maintenance costs will be very low. Routine “check-ups” are free through the dealer for a year or more, so I haven’t actually put a penny into it since I bought it last December, let alone $4500. My 1999 van, on the other hand, depreciates little (because of its low value) but costs more to operate because of its age. When figuring out maintenance costs for my vehicles, I add up what I paid last year, divide it by 12, and add a little (since the cars are one year older than they were last year). I keep a separate account for recurring expenses (car, clothes, gas, gifts, etc. etc.). If I fine I’m going in the hole with a certain category and it doesn’t average out over time, I bump up the contributions in that category.

    1. You are certainly correct, the first year shouldn’t cost you as much as the sticker depreciation. I’m looking at it as over the entire life of the vehicle. Over the car’s usable life it seems totally reasonable to me that you spend $9000 on maintenance in aggregate.

      Your plan seems better, assuming that you don’t ratchet it down in good maintenance years. I just intend to give a starting point for people who have bought their first used car and don’t really know what to guess.

Comments are closed.