The topic that morning was "How much am I spending on my car per mile?" The IRS lets me deduct $0.50 per mile in 2010 from my income. Surely, I thought, the tax man did a lot of research before coming up with this number. But it's not costing me this much. What am I missing?
A Frugal Miser Adds Up His Expected Vehicle Expenses
- First, I made a couple assumptions. I rounded the purchase price of my 2009 Pontiac G5 up to $13,000. I also decided that if I didn't drive a car, I could earn 6% by investing the $13K instead (conveniently, my car loan has an interest rate of 5.9%).
- Second, I decided my car will be worthless at 150,000 miles.
Purchase Price: spreading the cost of the car over its expected life, I spend 8.7 cents per mile on depreciating the cost of the car.
Maintenance/Repairs: it's hard to predict what I will spend to maintain my vehicle, but I figure I'll spend $2,500 over 150,000 miles to keep this car running. That's 1.7 cents per mile for maintenance and repairs.
Insurance: So far I have averaged 5,000 miles per month, and I pay about $100/mo. for insurance. I spent about 2 cents per mile for insurance.
Interest/Opportunity Cost: For this calculation, I simplified things. How much interest would I earn on $13,000 at 6%? I would spend $780/year, or $65/month. Since I average 5,000 miles per month, I spend about 1.3 cents per mile on interest.
Adding each of these five areas gives me a per mile cost of 22.6 cents.