The real cost of owning a car | Car buying | Financial Literacy | Khan Academy

So let's think about all of the costs that are involved in buying the car. The first and most obvious one is the cost of the car itself. Now, it's really important to think about what the actual cost of the car is, because you might say, "Okay, there's Car A that costs $25,000 and Car B costs $30,000." Car B is the more expensive car, but that's not always the case.

You are unlikely to just drive that car until it stops working, although some people might do that. What you're probably going to do is drive it for 5 years, 10 years, and then sell the car. So, what you really want to think about is not just what you're paying up front when you get it for the first time, whether you're buying a new or a used car, but also when you are selling it, what's it likely to go for?

Now, it's impossible to predict the future, but you can look historically for that make and model—whether it has good depreciation, whether it doesn't decrease in value too fast, whether it has good resale value. Generally speaking, practical cars with good fuel mileage that a lot of people are interested in getting that are reliable tend to have good resale value, while cars that are a little bit more unusual, maybe less practical, and a lot less reliable tend to depreciate very, very quickly and have not-so-good resale value.

Now, once you think about the depreciation of the car, and in other videos we talk about if you're financing, if you're getting a loan for the car, the different costs there, then you think about the cost of the day-to-day of owning the car. The most obvious one is what do you pay for fuel? In most cases, even today, gas is what most folks are using, and so you have to think about what is going to be the gas consumption of that car.

You can think about how much you're likely to use it, how much mileage a week or per month, and then think about what is the gas mileage for that car. There's a big difference between a car that gets 15 miles a gallon and that gets 30 miles a gallon—obviously, it's a factor of two.

Now, there's sometimes a misconception that the more cylinders a car has, the better; maybe it's more powerful, maybe it's smoother. That's not really the case, and in many cases, all you're getting is less fuel efficiency. But probably the thing that's most affecting fuel efficiency is just the size of the car—just the physics of it. If it's a big car with a lot of mass, it's going to take more energy to get that thing accelerating and decelerating.

It also matters how you drive. If you always drive with a heavy foot, then you're accelerating and decelerating a lot, and you're also going to use more fuel. But think about when you're thinking about picking the car versus thinking about how you're going to drive—think about that gas mileage; it will really add up.

Now, obviously, we have hybrid cars, which have much better gas mileage, and now you have electric cars. Electric cars still have a cost; although it's usually lower, it's still going to hit your electricity bill if you're charging it at home, or you might have to pay for chargers. Although some people might have access to chargers at work or something where you don't have to pay for it, but definitely keep that in mind.

Now, the next factor is insurance. Insurance is going to be related to your driving record, but it's also going to be related to the type of car you are driving. Once again, if you are driving a practical car that tends to be less flashy, insurers do all the statistics and they say, "Well, people who drive that type of car tend to get into less accidents or less costly accidents." Well, we can afford to charge less for insurance.

So, there's often a connection between that and cars that have good resale value. But definitely, when you're thinking about what you can afford for your car, it's not just the monthly payment; it's the gas, and it's the insurance.

Now, above insurance, you also have maintenance and repairs, and this is once again another reason to get a reliable car. Some cars might come with a warranty; that definitely has value. But the best thing is to look for a car that doesn't tend to require a lot of maintenance or is very reliable generally, so you don't have to do some major car repairs.

Also, look at what type of those repairs are. I won't name any names, but certain makes and models—the same repair can cost dramatically more than other makes and models. Now, you also have registration and other fees and taxes that you will have to pay, depending on your state, but it usually amounts to several hundred per year, so put that into consideration.

Then, last but not least, especially if you're living in an urban area, you have to think about where you're going to put your car. You might want to do it for security reasons, or you just need a place to put it. So, parking is another thing that you might have to factor in if that's something you need to do.

So, before you buy a car, think about all of those things and put that into your budget because you don't want to be surprised after you get your car.