Buying a car is not just paying for the price of the car, there are tons of costs associated with it and we oftentimes ignore or even unthought of it. In this article, I break down the cost of owning a car and you will reevaluate how you are going to choose a car if you wish to own one

When I say a Mini Cooper costs $50,000, do you think that this car costs $50,000, or do you think that this car costs $80,000? Most of us think this car costs the exact amount as its price tag.

In reality, the car costs you much more than that. When you choose to buy a car, don’t just look at the price tag, use a simple formula:

purchase price x 2 = real cost of owning a car

Here is why.

1. Cost from depreciation

Car is a depreciating asset. From the moment you own it, it’s losing value every single day, every single month. Once I was told, there is a faster way other than burning money to waste money, is to buy a new car. That’s why a majority of the millionaires chose to buy second-hand cars, according to the research from <The Millionaire Next Door>, which is a great book that I recommend everyone to read! When you are buying a car, calculate the monthly costs of the depreciation and compare it with an alternative such as public transportation, Uber, and so on. Ask yourself, is it really worth it to own a car?

Let’s have a look at the price of a brand-new Audi A4: CHF 57,900 ($65,050).

Let’s look at the price of a second hand Audi A4 after 45,000KM drive and 3 years old: CHF40,900. It is 30% off the original price. Is there a big difference in quality? No.

Let’s look at the price of another Audi A4, after 73,000 KM drive and 4 years old: CHF 29,900. It is almost 50% off the original price. Is there a big difference in quality? Maybe a bit. Is the difference worth the price difference? You decide. For most reasonable people, it is not.

Let’s look at the price of another Audi A4, after 114,000 KM drive and 5.5 years old: CHF 15,490. It is almost 73% off the original price. Is there a big difference in quality? No.

From year 0 to year 3, the depreciation is CHF17,000. If you buy the new car, on average you lose CHF5700 per year, CHF475 per month.

From year 0 to year 4, the depreciation is CHF28,000. If you buy the new car, on average you lose CHF7,000 per year, CHF583 per month.

From year 0 to year 5.5, the depreciation is CHF42,410. If you buy the new car, on average you lose CHF7710 per year, CHF643 per month.

After paying for the cost of the purchase, the value of your car goes down every single month. Imagine you buy the car, you lose the depreciation amount on the car, does the car sound more expensive to you now?

The calculation is based on the market price of the used car, so the depreciation value is known. If you were to sell your car after some years, you can only sell for minimal value, if someone wants to buy it.

Therefore, when you choose a car to buy, don’t just look at the purchase price, think of the monthly depreciation value that you literally lose every month. When you buy a new car, your car depreciates more than when you buy a second-hand car.

In a better scenario, if you really need a car and you think Audi A4 is the best choice. You are economically way better off when you buy a second-hand car, in this case, 5 years old. If you sell it after 5 years of use, it could still worth several thousand.

I found a similar car which costs CHF6,900 after 10 years of use with a 208,000km drive.

If we take this as a benchmark, buy buying a 5-year-old car, the depreciation value is CHF15,490-CHF6,900 =CHF8,590. Yearly depreciation is CHF 1718, monthly depreciation is CHF142. Compared to if you were buying a new car, your yearly depreciation would be (CHF57,900-CHF6,900)/10=CHF5100, or CHF425 per month.

2. Cost of Insurance

In Switzerland, the newer the car is, the more expensive the insurance is. It costs more than a thousand per year and it ends up as more than CHF100 to CHF300 per month. Add the monthly cost of insurance to the purchase of the car. The actual cost depends on the car and your driving history.

Assumed cost: CHF1500/ year

3. Cost of road tax

In some countries, whenever you use the national highway, you need to pay a fee. The more you use the more you pay. Estimate how much you are going to make long trips with your car, add that to the cost. In other countries, it could be a fixed fee per year.

Assumed cost: CHF40/ year

4. Cost of parking

When you take public transportation, you pay for the fair, that is it. When you drive a car, you need to pay for parking, most of the time. In cities, the cost of parking can be as high as $5 per hour. You may have to pay more than a hundred for parking if you use your car to work and there is no free parking in the office.

Assumed cost: CHF 600/year

5. Cost of repair

No one can guarantee that there will be no damage to the car. It could be as small as scratches or as big as a dent or worse. Each time the car is sent to the garage, the cost of insurance goes up. With a dent on my door, it costs me CHF1200 more on insurance. This part should not be forgotten.

Assume cost: CHF 400/year

6. Cost of maintenance

This includes the change of tires, from winter to summer or vice versa, and the car service which should be carried out every couple of years. Those are occurring costs every year. Don’t forget to add several hundred to the cost of the car. Right, car cleaning. How could you forget that? It might cost you CHF300 per year if you have a good cleaning once a month.

Assumed cost: CHF 450/year

7. Garage space

If you don’t have your own garage space, you need to rent a parking lot in the building where you live. That could be below or above a hundred per month. In some cities such as Hong Kong and New York, it could cost several hundred dollars per month.

Assumed cost CHF1,800/year

8. Fines

Don’t forget to factor in the fines you may receive from overtime parking, speeding, or driving through a red light (yes I did all). Even it is unintentional, it could happen. The fine is big, in hundreds. So if you are doing budgeting for the car, adds another couple of hundreds to the cost.

Assumed cost CHF300/year

9. Fuel

When you buy a fuel consumption heavy car, it can cost you 50% more than a small car. If you commute normally 30km per day, 30 days a week. You will drive 900Km per month, which is about between CHF126 — CHF200/month on fuel. Then you might do some road trip in the year or drive somewhere to visit your relatives.

Assumed cost CHF2000/year

10. Traffic tax

In Switzerland, there is also a traffic tax for each car. The more engine power your car has, the more tax you pay for it. the exact amount depends on where you live, but you can factor in a CHF600 per year.

Assumed cost CHF600/year

11. Inspection

When your car is several years old, you need to send it to a control process where the car is inspected to ensure that it is not a road hazard and you can still drive it. The exact cost varies on where you live, but in general, put a CHF600 cost to it for an estimate.

Assumed cost CHF600/year

In total, the cost associated with the car, without the purchase price is about CHF6,490.

The real cost of owning a car is twice the purchase price

If you use the car for 10 years, let us keep it simple, the estimated cost of 10 years would be CHF64,900.

If you buy a new car, and use it for 10 years and sell it for CHF6,900, the cost of depreciation is CHF51,000. The other cost is CHF64,900. The total cost is more than double the purchase price. You would have paid CHF115,900 for the car in the period of 10 years, or CHF965 per month on average. How much would it cost you to use public transportation or even take Uber now and then per month? Probably less than CHF965 per month.

There are many benefits of owning a car, especially a brand new one. A Car provides convenience, sometimes saves your time, but the cost to it is not negligible. So when you decide to purchase a car, don’t just look at the price tag, consider all costs associated with it, especially the depreciation. Then make a well-informed judgment on which is the best for your financial and personal situation.