Weekly upkeep fund for cars, quantification thereof

Question

My colleague in the states has the typical suburban collection of three cars in their family household

• a fairly new used car (a few yrs old; no factory warranty left)
• 2x $5000 range used cars

after I got over telling him he spends too much on cars, we were trying to figure what a good amount is to put aside each week to cover the cost of

1. tires, similar
2. repairs which inevitably happen
3. zero self-maintenance, everything at a shop

I thought about $100 a week; maybe that's low?

• what would it be?
• maybe there's an established wisdom for this?
• is there perhaps a magic online estimator for this sort of thing or some similar auto-club type resource?

I did tag it "USA", since car upkeep costs are drastically different (say, for example comparing US to UK), but an all-world outlook is always appreciated.

(IMO differentiated "weekly savings accounts" are an incredible financial tool. Put $30 a week aside in your computer sinking fund, $5 a week aside for Christmas, and so on.)

Answer 1

I agree that there must be an actuarial way of measuring these things. I would also argue that the number should be easy to find and work with. After all, if it takes 2 days working with a stats package and actuarial tables your colleague will literally never look at it again.

I think the IRS's business mileage allowance rates might be a reasonable compromise. It can't be too far out either way because otherwise, no one would use it if it's too low or they're giving away free money if it's too high.

It is calculated using "an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil".

For 2018 it is 54.5 cents per mile. For the rest of the calculation, I'm just going to use the numbers for an 'average' American, of course, you'll be able to plug your colleague's actual numbers in.

Annual allowance = total miles * $0.545 = 13,500 * $0.545 = $7,357.50

Less insurance = annual allowance - insurance = 7,357.50 - 750.00 = $6,607.50

Divide by 52 to get weekly = 6857.50 / 52 = $127.07

That still includes gas, so subtract weekly gas, say $30 = $97.07.

I'm in the UK, so I'm afraid I have no real idea of how much gas and insurance will cost in the US so I dropped in numbers that feel right, but you'll have the actual numbers you can put in.

The first hidden assumption in these numbers is that maintenance of an older car will roughly balance the depreciation of a newer car. A real banger or lemon could easily require much more maintenance than average.

The other assumption I see in this calculation is that the cost of insuring a car that isn't driven much could outweigh the amount of the allowance for the milage, but I'm assuming that all 3 cars are covering a reasonable distance. If one is a rarely driven pleasure car then it might be best to calculate the amount for the other two cars and add the weekly cost of the insurance onto the top because its other expenses are likely to be quite low.

It doesn't look like $100 per month is that far out for an average though.

References:

https://www.forbes.com/sites/kellyphillipserb/2017/12/14/irs-announces-2018-mileage-rates-even-though-tax-reform-talks-may-limit-use/#7757779c7631

https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017

https://www.fool.com/investing/general/2015/01/25/the-average-american-drives-this-much-each-year-ho.aspx

Answer 2

The majority of the car's effective cost are hidden - loss of value.

If you buy a $40k car and use it for four years, its value is typically halved - $20k. Dividing $20k loss by 4 years of 52 weeks gives you just short of $100 per week - for one car.
For the older $5k cars in your example, let's assume he buys them at $7k and sells them at $3.5k, that results in $ 17 per week.

The next best chunks of cost are insurance and gas usage.
Obviously, gas usage depends on how much you drive (and how), and is not much different for having one or two or three cars - it just distributes out differently. Insurance depends on car class (and how much you shop around), and will be at least $25 a week for each car.

Maintenance slightly depends on usage / mileage, but compared to the other parts, it is small and less relevant. It depends on what you do and how often you do it - some people wash their car every week, others never.
Anecdotally, I have a detailed accounting, and my five-year average on Maintenance (including all regular maintenance done in the shop, spare parts, tires, etc) is about $4 per week (per car). As explained above, peanuts compared with the other ongoing cost.

Answer 3

There is no way to pick a number. It depends too much on the history of the cars, and how they were used, and how they are used. The best number is by experience. If they have owned them for a few years they know what they have been costing them.

It could be based it on total cost of ownership estimates that can be found online. You could also base it on local prices, get estimates for the 15,K,30K,45K... mile service. Factor it an estimate for the tires, and other expected items. The key is to adjust as needed. Then use a life happens fund to cover you when the unexpected happens.

When I was younger the fear of a large bill made we search for a number to set aside for car repairs. Overtime that the only thing I needed to set aside money for was insurance. And then saving money for a replacement as the car hit the 10 year mark. The normal maintenance for oil changes, tires, and the like was easier to absorb as our financial situation matured.