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Author: KevinKitSorensen Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 17919  
Subject: The cost of gas is not a big factor Date: 4/19/2006 10:43 PM
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My parents have been retired since Dad was about 48. Their success story is one of reasonable yearly returns (9% since the mid 1980s after counting all costs) and a live below your means lifestyle.

I can say 9% "counting all costs" because my father has meticulously recorded every expense, and I mean everything, going back years and years and years.

Recently he quoted me an interesting couple of figures that he had gleaned after running some queries against his database of expenses.

Dad's current car is a Toyota Corolla. It is 15 years old and he's decided to get a new one (it is still doing OK and has never caused him any real problems, but it's time ... living below your means).

First, Dad ran the numbers to determine what owning that car cost him over the last 15 years and what percentages were attributable to what.

The primary cost was the cost of the car itself (Dad factored in the opportunity cost of paying for the car instead of keeping that money invested at 9% for 15 years, an interesting way of looking at it).

17% of the total cost was for Gas. 17% went to insurance.

Mom and Dad do drive less than most people and insurance has been pretty cheap (since I moved out), but those numbers are interesting. Gas does not double too often; the cost of gas rose 2.3 times since 1991 (according to the U.S. Department of Energy, Energy Information Administration). However, the other expense factors can change dramatically starting the day you buy your car.

This story suggests several things you should consider before and after you buy your new car.

1. Think long and hard about whether you really need that SUV, luxury sedan or sports car. You may need a car, but every dollar you spend beyond what you "need" to get what you "want" is money that cannot compound year after year after year (quite the opposite if you have a long-term car loan).

2. Do you really need a new car or is the other one still OK? Today's cars keep running well for a very long time but many people flip cars every few years. This will cost you a lot of money and could seriously delay your retirement. Have you thought about it that way?

3. Do you really want to risk paying two or three times (or more) the minimum insurance premiums by speeding around from place to place risking tickets and accidents? Taken to extremes (as many do), insurance could end up dwarfing your other costs.

But the cost of gas? Not a big factor when compared to your other costs, particularly if you buy more car than you need or have a bad driving record.

And a Hybrid vehicle? Do it for the environment not because of gas prices. It still does not make financial sense for most of us when we could put the cost difference into our retirement account to start compounding.
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