Don’t Underestimate The Cost Of Ownership

This is a significant pitfall you might fall into when purchasing a car or a home. Since you will most likely be purchasing a car before a house, let’s look at the monthly cost of automobile ownership

(not including the purchase price):

▪Insurance ($50–$300)

▪Registration & Title ($2–$20)

▪Maintenance and repairs: oil changes, tires, car washes, etc. ($10–$100)

▪Gasoline ($40–$200)

▪Parking and tolls ($0–$300)

All of the above vary depending on the following factors (and many others):

▪The type/size of your car (e.g., the cost of insurance increases as the price of the car increases)

▪Where you live (e.g., parking in New York City versus in the suburbs)

▪How many miles you drive a year (e.g., commuting thirty miles/day versus ten miles/day)

▪Your driving record. When you factor everything in, the monthly cost of ownership can be as high as your monthly payment, especially if your insurance costs a lot!

Now let’s look at the cost of home ownership (not including your down payment and mortgage):

▪Taxes (in some states as high as 2 percent of your home’s value)

▪Insurance

▪Maintenance and repairs (plumbing, carpeting, painting, etc.)

▪Filling your house with furniture and appliances

▪Utilities (e.g., gas, electric, water, and garbage)

▪Homeowner association fees

▪Landscaping

▪Closing costs

▪Home inspection

A couple of these are one-time costs (closing costs and home inspection) that people forget to budget for at the beginning of their home purchase. Some people would classify other costs (like maintenance and repairs) as “unexpected,” but experienced homeowners know that you need to budget for “unexpected” maintenance and repair costs since they tend to occur every year.

The bottom line is that you shouldn’t just think of the purchase price of your home or car.

If you forget about the cost of ownership, you will find yourself selling your home or car sooner rather than later.