FINANCIAL FRESHMAN #073

TL;DR → When you itemize insurance, depreciation, gas, vehicle debt, etc., your cost per mile to operate your vehicle could easily exceed $1.00. Do this math for your own situation, and understand how many of these variables are within your control.

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The Car Payment Is Only the Beginning

In our post a week ago, we outlined our car buying framework. When you get to the point in your adulthood where you need (or want) to purchase a vehicle, these are the three things we suggested you keep in mind.

Where it warrants more discussion is regarding the phrase “cost-effective,” which I’d like to talk about in more detail this week. You see, a common mistake in the world of car buying is judging affordability based on the vehicle price, or (worse) the monthly payment.

Bottom line up front, here’s the takeaway on my mind this week: Your transportation is a recurring and variable budget category, and many of the costs you’ll incur will never appear on your vehicle’s price tag.

Let’s talk through what I mean.

The Cost of Commuting: $0.70/Mile

One of the most popular finance bloggers out there is a guy by the name of Peter Adeney, better known by his moniker Mr. Money Mustache. You may recognize the name from the cover of The Simple Path to Wealth, a book we’ve discussed in detail on this blog.

Anyway, back in 2011, Mr. Money Mustache published an eye-opening post titled The True Cost of Commuting. While we certainly need to update some figures to account for 14 years of inflation, the teachings from this post are just as scarily true today as they were back then. In short, your transportation costs are significantly larger than you think they are.

Did you know that the IRS publishes how much a mile of commuting costs? This makes sense, when you take a step back. There are millions of self-employed people in the US, and they may need to track their work-related travel for tax purposes. In their words:

“The mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile” (Source)

That figure in 2011 was $0.51 per mile of travel. Today it’s $0.70.

$0.70/Mile…How?

That’s the reality of 2025’s average commuting cost, but where exactly does it come from? In our post last week we briefly outlined some of the supplemental costs associated with vehicle ownership, such as insurance and maintenance. Let’s take a deeper look this week.

To help us make since of this $0.70 average, let’s take a look at an average person. Meet Alex.

Alex, conveniently for us, is the most average person in existence. He works an average job as a graphic designer, makes an average income of $60,000 per year, drives an average Toyota Corolla to work, and has an average one-way commute of 27 minutes. Let’s assume in this 27 minutes, he covers 16 miles. So daily, he’s adding 32 miles to the ‘ole Corolla. Working 240 days per calendar year means he’ll drive 7,680 miles in that span, and we won’t worry about any additional personal travel for the time being.

Let’s take a look at the costs that Alex incurs each time he drives his car for one mile. Shocker—he’s average, so it’s $0.70.

$0.20 Per Mile → Insurance

Coming in at the whopping costs of two dimes per mile, we have the cost of Alex’s car insurance policy. Alex found a policy that runs him $125 per month, or $1,500 per year ($1,500 / 7,680 ≈ $0.20).

$0.14 Per Mile → Depreciation

Here’s where the math gets a little more nuanced, but stay with me. Let’s say Alex purchased his Toyota for $20,000, drove it for 9 years, and then sold it for $10,500. At 7,680 miles per year, he would have driven 69,120 miles over this span, while the car lost $9,500 in value. Dividing this $9,500 by 69,120 miles gives us roughly $0.14.

$0.12 Per Mile → Gas

Simple math this time! Alex’s Toyota gets 30 miles per gallon, so gas will cost him $0.12 per mile at a gas cost of $3.60 per gallon. Obviously the price of gas is variable, and largely dependent on what our elected officials happened to have tweeted recently.

$0.08 Per Mile → Repairs, Wear Items

This is the stuff that you’re certainly not thinking about when you sign the paperwork for a new car. This category includes your air filters, brake pads, rotors, spark plugs, etc. If we budget $600 for the year, this will cost us $0.08 per mile ($600 / 7,680 ≈ $0.08).

$0.04 Per Mile → Basic Maintenance

Coming in a 4 more cents per mile is our basic maintenance, which really just entails Alex’s oil changes and other fluids. If we plan $120 every 6,000 miles for oil, plus an additional cushion for other fluids like coolant, transmission fluid, power-steering fluid, and brake fluid—4 cents per mile is a defensible figure.

$0.12 Per Mile → Everything Else!

What do the five categories above omit? Welll…

Tires, car washes, car-care equipment, personal property taxes, parking, tolls, and any mandated registrations—to name a few. With all of those things together, we can expect to tack on another $0.12 per mile.

Does it feel silly to discuss literal pennies on the dollar like this? Totally understood if it does, but let’s take a look at how they add up.

Cost Per Mile → Cost Per Year

At a cumulative $0.70 per mile, driving 7,680 miles per year, these transportation costs will cost Alex $5,376 per year.

Maybe that is surprisingly low in your mind, or maybe that number already scares you. In either case, keep in mind that reality is a likely a little bit worse.

• Remember that we omitted any vehicle debt. The average car payment, per Experian, is $745 per month. If we add in those total costs of $8,940 per year, that’s adding $1.16 per mile to our total transportation costs.
• Also remember that we omitted any personal travel. If Alex mirrors the average American and travels 14,000 miles per year instead, obviously we can expect increased costs from vehicle wear-and-tear and depreciation.
• We also omitted the opportunity cost associated with Alex’s time, which is a critical point to Mr. Money Mustache. Think about the things that you’re not doing when you’re traveling upwards of 40 miles per day in your car?!

The good news, as we wrap up, is to keep in mind that you have nearly complete control over what these numbers look like for your situation.

Final Thoughts: The Goal Is Mobility

Before you freak out—take a look at our list of expenses, and think about how many of them you can control.

• Paying a larger down payment, or buying a used car in cash, will greatly cut down on the cost per mile coming from vehicle debt.
• Watching some YouTube videos and learning how to change your own oil could turn a $120 job into a $45 one.
• Buying a fuel-efficient car could significantly cut down on your annual gas spend.
• Living closer to your place of work, if geography allows, would bring about significant savings from cutting down on your total miles traveled in the first place.

Above all else, just remember that a car is a tool. Owning one isn’t inherently bad, but you can make a smarter purchasing decision when you understand the true cost of ownership and operation. Never get desensitized to a long commute either, now that you know how much it may skyrocket your costs.

Figure out these numbers for your situation! Just keep in mind that you may not like the answer.