Why your car is making you retire 5 years later (or longer!)…
20th March 2020
F.I.R.E is all about retiring early- for some people as early as possible, for others it’s just stopping work a little earlier than the average. Whichever you are aiming for- running a car can literally add 5 years to your F.I.R.E age.
Surely that can’t be right?
Lots of people run a car- or even multiple cars if you have a larger household, you know how much they cost you right? You know your work commute, be it 5 miles or 30 miles each way each day- costs you £xx in petrol a week (or even a month). I mean, a car really doesn’t cost that much does it? With most newish cars now doing well over 40mpg- well, unless you have bought a sportcars or massive SUV, that’s pretty good fuel efficency… right?
Running a car isn’t just about the cost of the petrol that you put into it- everybody knows that. In fact, lots of people do talk about the running costs of a car- and in fact when you are researching that’s one of the features that gets sold. What almost nobody talks about…… is the sunk cost of the car. If you spend £20,000 on a car, and you think it’s going to last you about 10 years, then the sunk cost is that full £20,000- or £2,000 per year. Now it might be that actually after 10 years, the car still has a little bit of value- maybe £3,000, so actually the cost is slightly lower on a per year basis- at £1,700.
Then you have the running costs of a car- and I don’t just mean the cost of petrol/diesel (or even electricity)- but the other items like tyres, servicing, insurance, VED, mot and other consumable items. That’s before we even start talking about all the things that can break on your car- let alone the upgrades that you might want to make as well (towbar, new radio/bluetooth unit, gps, alloy wheels, changing suspension etc etc) It’s when you start adding these up- that you realise the per mile cost (or yearly cost) of your driving is actually way way more than you expected.
So, what does the average running costs for a pretty new car actually look like then, well, here are some averages to think about- do note I’ve made some assumptions here, such as- 3 year old car, 7,900 miles per year, of an “average-ish” car- think Ford Focus.
Insurance- £485 per year, more if you pay monthly 
Vehicle emissions duty, VED – £140 (or “car tax”), this could be lower or higher- depending on the emissions your car produces 
MOT- £54.85 – again you might be able to find this slightly cheaper 
Petrol/Diesel – £957- 7,900 miles @ 45mpg, paying £5.45 a gallon
Servicing- £205- this will depend on a full or interim service- but with 7,900 miles a year, most cars will need a full service each year 
Tyres- £100 per year, they should last between 20,000-30,000 miles, so looking at replacements about every 3 years- at £80~ per tyre etc.
Running costs £1941.85 from above calculation
Purchase cost of a medium sized car- £29,000 , let’s assume it’s still worth £4,000 after 10 years, making a yearly cost of £2,500
Total yearly cost: £4,441.85
Did you really know that you average-ish car was costing you over £4,000 a year? If you are doing the average milage of 7,900 miles- you car is costing you 56p a mile, every single mile you drive! If you have 2 cars in your household- you obviously need to double this.
So how does this affect your F.I.R.E ?
Well, hopefully you have read your “what’s your F.I.R.E number” post I’ve written and you have an idea of what your number is. Did you include the cost of your car(s) in this number? Because if you didn’t- then you need to add £4,441.85 to your yearly spending. Let’s assume you are going for a 3% withdrawal rate- you now need £147,900~ more assets to support this spending. Hopefully you are now seeing where the topic of this post is now going… How long will it take you to save nearly £150k? 5 years? 10years? If you don’t run a car, you can cut this straight out of your fire number right now! Even if this could mean moving house to somewhere with more public transport- or close so you can walk/cycle, it could be worth it versus saving for another 5+ years
As with any “average” figures, very few people actually fit into the exact figures that are above. If you are a young/new driver- you would wish to only pay £485 for a your first years insurance- its more likely to be well over £2,000 a year. Of course, if you are older- & especially when you have years & years of no-claims, you can pick up insurance for less than £200!
Many F.I.R.E individually try and run “bangernomics“- buying an older car, so the upfront payment for the car is lower. Usually the servicing and insurance can be cheaper as well- as if the car is written off, it’s worth less etc.
I have included any consumables (apart from tyres) & repairs to the car- which after 10 years are surely going to add up a bit- especially as cars get more and more complex. I also didn’t include any fiancing costs- as these are so variable- from 0% if a dealer really wants you to buy the car this month, to 8% and more from less reputable places (or if your credit score isn’t that great). These items can add literally thousands to the cost of a car- but are just so variable because it depends on the car you buy.