Things I’ve learned so far: The financial margin, Part III – Auto expenses

This post is part of a series called “The margin”.  If you missed the introduction, you can go back and read it here.  In this part of the series, I’m talking about building in a financial margin when you consider your budget for expenses.  This is the third installment on the financial margin.  If you missed the first two you can read them here and here

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Part III: Automobile-related expenses

Let’s be honest.  Car ownership rarely costs less than we expect.  Consider the following ways in which you might incur overages in this area of your budget.

1. Auto maintenance, repair and insurance

It’s very hard to estimate how much money your car will need to keep running.  I think that’s part of the reason maintenance plans are such popular up-sells with new car sales.  Repair bills are one thing, but never knowing when they’re coming or how bad they’re going to be really makes them sting.  There are some rules of thumb about this.  One I read said to expect to pay $200-$250 for regular maintenance (beyond what’s covered in the warrantee) in the first year you own a new vehicle.  Increase that to $300-$350 during the second year and $400-$450 in the third.  If your car is 3 or more years old and no longer under warrantee, plan to need $600-$1000 each year for repairs and tires.

Keep in mind that no source is definitive.  You know your car better than some “expert” on the internet who doesn’t even know whether your car is 4 years old or 14, a BMW or a Toyota.  Use your judgment, or better yet next time your car’s in the shop, ask your mechanic what to anticipate over the next year.  S/he should be able to give you some indication of what’s likely to break next.

Auto insurance is somewhat stable, but it does change from year to year, and can change a lot if you have an accident.  (In the interest of fairness, I will say that this is another area in which I have incurred unexpected underages.  My auto insurance carrier, AAA, has issued me a credit in years when they did well.  I think theirs is a not-for-profit member-owned model, so technically it was my share of the profit they gave me.  As much as I would love a refund every year, I bank on the rate going up, not down, over time.)

2. Gasoline

Gas prices have been relatively low lately, but there’s no telling when that might change.  It’s best to estimate how much it might cost to fill your tank based on the high end of the range in recent years.  In my area, that’s close to $5.  And that was just a year ago.  In the past 3 years, the monthly average gas price in California has changed as much as $1.50 per gallon.  Illinois experienced similar price changes, while in Massachusetts the difference between the highest and lowest price was $1.20.  It was $1.25 in New York and Washington State, and $1.30 in Georgia, Texas and Kansas, to name a few others.

Depending on how much you drive and the gas mileage of your car, the effect of the change in gas prices can range from a minor irritation to a cutting-into-the-grocery-budget problem.  Here’s a quick illustration.  Let’s say you drive 1000 miles per month and your car gets 25 miles to the gallon, on average.  If the price spikes by $1.00, as it has several times in many states over the last 3 years, you’re looking at a $40 unexpected increase in your monthly spending (or 25-35% of your gas budget in percentage terms).  For some, that will represent a serious hardship, for others it will cut into what they spend on eating out or contributing to savings.  But it will affect everyone somehow, and not for the better.

If you want to see precisely what average prices have been in your area, you can find the data at this website.  The site allows you to select your state or nearest major city and specify the timeframe you’re interested in.  For me, 3 years is about right to get a sense of where the current price falls in the range of possibilities.  Check out how prices have varied in your area (or just guestimate a $1.00 spike) and give yourself a margin in your gas budget.

Even if prices don’t rise, you may end up using the additional money if you drive more than expected. This time of year there are fall adventures to be had (leaf peeping, apple and pumpkin picking, autumn hikes) and holiday road trips to account for.  Although much cheaper than flying, holiday road travel can add non-trivial amounts to the gas budget.  (And don’t forget to account for the drive thrus, road snacks, and audiobooks!)

**Tip** For reducing gas costs on a regular basis, you can try using Gas Buddy’s website or mobile app to find the cheapest gas in your area or on the road.  I hear good things.

3. Parking/moving violations

I’m not advocating you plan to speed or ignore parking rules.  But sometimes we (routinely) incur unexpected overages in these areas.  Years ago, I had a second car that I never drove.  Not a proud period, but it was a Toyota I couldn’t sell during the recall fiasco, so I held on to it…until I literally couldn’t drive it anymore because I had a baby and couldn’t put a car seat in a two-seater convertible.  Anyhow, for 18 months, I left the car parked on the street and would move it twice a week for street cleaning.  Unless I forgot.  Or remembered, but my battery had died from severe neglect.  Then I usually got a parking ticket.  Ouch.  If I had factored tickets into the cost of keeping the car I might have realized I was better off just selling the car sooner rather than waiting for prices to recover.

If you have some odd situation like I did, or live in an area with particularly punctual parking enforcement authorities (I seem to have a knack for that), you may want to build a margin into your budget for auto-related expenses.

What did I forget?  Are there other common causes of unexpected spikes in auto-related expenses?  Do you have effective ways to deal with it?  Please share.

Next time I’ll talk about why you may want to build a margin into your budget for medical expenses and share a few tips on how to do that.

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Disclaimer: I’m no financial pro, nor professional.  I do have common sense, some life experience, and smart friends who know about these things.  However…

The information provided in this post is my personal opinion and does not constitute professional financial advice. The information is of a general nature only and does not take into account your individual financial situation or needs. If you need financial advice, Economist at Home recommends that you contact an appropriate professional.  Furthermore, while this post may contain links to third party websites, these have been provided solely for further information.  Economist at Home is not responsible for their content.   The inclusion of links to a third party website is not an endorsement of the content provided or the third party itself.

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