Neighbors must wonder what is wrong with my finances; One year I'll be driving a $3K used hatchback and the next a new BMW. The sticker cost of a car often has little correlation to the enjoyment it gives. As someone who obsesses over details the overall cost of car ownership is something I am very interested in. For many years all my auto purchases are rationalized with a little help from Microsoft Excel, Kelley's Blue Book and Note that I use many techniques to obtain amazing discounts on cars too, but we are not discussing that today.

Within the next four weeks my intention is to buy a '99 Miata and prepare it for auto-crossing. Last night I realized the highly regarded new for '06 MX-5 Miata only costs $21K and with the warranty, rapid progress of car technology etc thought it might be a better buy than a used one.... some spreadsheet work later:

  • '99 Miata costs $225/ month
  • '06 Miata costs $507/ month
  • '06 BMW 325i costs $510/ month
Do you see the power of taking a little time with research? A $21K Miata costs the same as a $31K BMW to own and double the cost of a used one!!! Also note that these are ALL IN COSTS, do not compare these numbers to lease quotes. The costs above include sales tax, insurance, maintenance, new tires, gasoline etc. They assume a private sale of the car after three years ownership which is obtained from

The spreadsheet looks like this and you can download it by clicking here:

The spreadsheet does assume paying cash, which would otherwise earn 5% interest per year. Alter the percentage and I think it will be pretty close to financing. Open up the spreadsheet and you will be surprised at the real costs of some vehicles; interestingly in the USA the real cost is largely a function of residual value whereas in the UK fuel costs are normally a large percentage of the pie. The trick to good residual value is to buy a high regarded car with a strong market for used examples, the Honda Civic and BMW Mini are prime examples; then buy that car with as few optional extras as you possibly live without.

Did you notice in the spreadsheet that a base model BMW 325i costs $510/ month where a fully loaded 330i costs $1080/ month - these are essentially the same automobile, but over three years the loaded one costs an extra $20,500!! Are you looking to justify that surround sound kit and 42" HD Plasma to your wife... I am kidding the money obviously goes into a pension or kid's college savings fund, right?

Final tips on buying a car

  • Buy a cheap car - let you neighbors have trouble making payments while you pile the difference into a 401K/ IRA
  • Before buying research what it will be worth in three years time
  • Haggle, haggle and haggle some more for a discount
  • Deal over the phone/ fax when negotiating a price - don't go to a dealer in person - car dealers are EXPERTS in selling
  • Think before loading the car with extras - these lose their value VERY FAST
  • A healthy pension is much more important than shiny metal - did I say that already?
  • Every car sold today is an excellent car - even Kia and Hyundai provide reliable transportation
  • Remember most people dislike it when you drive a better car than they do; just buy that Civic or Camry and receive no jealous looks
  • If you use finance be sure to separate those details from the cost of the car