Car Costs and FIRE: What Your Vehicle Really Costs per Year

By Tom, CPA · Updated October 25, 2026

TL;DR: Transportation was the second-largest household expense in 2024 BLS data, about $13,318 a year. The biggest car cost is usually depreciation, not gas. Buying reliable used cars, paying cash or financing short, keeping cars longer and going down to one car can cut thousands a year, which lowers your FIRE number by many times that.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Cars are the second-biggest expense for most households and probably the most underestimated. According to the BLS Consumer Expenditure Survey, average transportation spending was $13,318 in 2024, about 17% of all household spending. Vehicle insurance alone averaged $1,993.

The IRS standard mileage rate offers another reality check: 72.5 cents per mile for January–June 2026 and 76 cents per mile for July–December 2026 (as of Oct 2026). That rate is meant to cover the full cost of operating a vehicle for business, including depreciation, insurance, repairs and fuel. At 76 cents, 12,000 miles a year works out to $9,120. Your costs may be lower or higher, but it's a useful benchmark. This guide covers depreciation, insurance and maintenance, financing math, used vs. new, and one-car households. This is education, not personalized advice.

CPA Warning Label: A new car loses value the moment you drive it off the lot, which is a remarkable feat for something that hasn't even had time to get dirty.

Depreciation: the silent biggest cost

Depreciation is the value your car loses each year. You never write a check for it, so it's easy to ignore, but you pay it when you sell or trade in.

How it works

• New cars generally lose value fastest in the first few years.
• Depreciation slows as the car ages, so older cars lose fewer dollars per year.
• Popular, reliable models tend to hold value better.

Illustration (hypothetical, rounded): A $45,000 new car worth $25,000 after five years loses $20,000, or $4,000 a year. A five-year-old version bought for $25,000 and worth $14,000 five years later loses $11,000, or $2,200 a year. Same model, same 10 years of total use, but the second owner paid much less depreciation per year.

Calculating your own

Annual depreciation = (Purchase price − Expected resale value) ÷ Years owned

Look up typical resale values for the model and age you plan to sell at, using several pricing guides.

Insurance and maintenance

Insurance

BLS data shows average vehicle insurance spending of $1,993 in 2024, up 12.3% from the prior year. Ways to manage it:

• Shop rates periodically; prices vary widely between insurers for the same driver.
• Raise deductibles if your emergency fund can cover them. See the emergency fund checklist.
• Consider dropping collision and comprehensive on low-value older cars, once the premium is large relative to the car's value. Liability coverage is a different matter: don't skimp there.
• Ask about discounts: bundling, low mileage, safe driving programs.

Maintenance and repairs

• Follow the maintenance schedule; skipping oil changes to save money is the automotive version of skipping dentist visits.
• Budget maintenance as a sinking fund: tires, brakes, batteries and eventual major repairs.
• Older cars need more repairs, but often less than their extra depreciation saved.
• Get a second quote for large repairs.

Fuel and other costs

Fuel, registration, parking, tolls and inspection fees add up. Track them for a year to see your real total.

Financing math

Car loans add interest to an already depreciating asset.

Illustration (hypothetical): $35,000 financed at 7% APR.

Lessons

• Long loans hide cost. The 84-month loan looks affordable monthly but costs more than twice the interest of the 36-month loan.
• Negative equity risk. With long loans, you can owe more than the car is worth for years, which hurts if it's totaled or you need to sell.
• Negotiate price, not payment. Focusing on the monthly payment lets the term stretch quietly.
• Get preapproved from a bank or credit union before visiting a dealer, so you can compare offers.
• Paying cash avoids interest, but compare the loan rate to what that cash could otherwise earn. A very low promotional rate might be worth taking if you'd keep the cash safely invested.

For payoff planning on existing loans, see the debt payoff calculator.

Used vs. new

A common FIRE approach

• Buy a reliable model a few years old.
• Pay cash, or finance briefly.
• Keep it 10 or more years and drive it until repairs become unreasonable.
• Save monthly for the next car so it's paid for when needed.

Get a pre-purchase inspection from an independent mechanic. It's a small cost compared with buying someone else's transmission problem.

When to replace a car

FIRE savers often drive cars long past the point their neighbors trade them in. The question is when keeping an old car stops being frugal and starts being expensive.

Signs it may be time

• A single repair estimate exceeds the car's value, or a year's repairs exceed what a year of depreciation and payments would cost on a replacement.
• Reliability has dropped enough that breakdowns cost you missed work, towing and rentals.
• Safety concerns: worn structural parts, or the car lacks safety features that matter for your driving.
• Your needs changed, such as a growing family or a much longer commute.

Signs it's not

• Repairs are routine wear items like tires and brakes, which any car needs.
• The car is paid off and repair costs average less than a car payment would.
• You're bored with it. Boredom is not a mechanical failure.

Illustration (hypothetical): Fran's 14-year-old sedan needs $1,800 of work this year. A replacement would cost about $3,000 a year in depreciation plus higher insurance. Fixing it is cheaper, as long as next year doesn't bring a $4,000 transmission. Fran keeps the repair history in her car sinking fund spreadsheet so the trend is visible, not just the latest bill.

The one-car household

Many two-adult households own two cars by default. Going down to one can be the biggest single savings move outside of housing.

Illustration (hypothetical): Frugal Fran and her partner own two cars. The second car costs about $2,200 a year in depreciation, $1,400 in insurance, $900 in maintenance, $1,300 in fuel and $300 in registration and fees: $6,100 a year. Selling it and using biking, transit and occasional ride-hailing costs them about $1,500 a year. Net savings: $4,600 a year. At 25 times spending, that lowers their FIRE target by about $115,000, and the sale adds cash to invest.

Making it work

• Live where one person can commute without a car, or work remotely.
• Coordinate schedules.
• Budget for occasional rentals and ride-hailing.
• Try it first: park the second car for two months.

Your annual car cost worksheet

1. Depreciation: purchase price minus expected resale, divided by years owned.
2. Interest paid this year.
3. Insurance.
4. Maintenance and repairs.
5. Fuel or charging.
6. Registration, inspection, parking and tolls.
7. Add it up. Divide by miles driven for cost per mile, and compare with the IRS rate as a sanity check.

Lavish Larry did this exercise once, discovered his SUV costs $1.18 a mile, and immediately decided the worksheet was wrong. It wasn't.

Repeat the worksheet every year or two. Costs drift: insurance premiums rise, repair bills creep up as the car ages, and fuel prices swing. A written number you update beats a vague feeling that the car is basically free because it's paid off. A paid-off car still depreciates, still needs insurance, and still drinks fuel; it just stopped sending a monthly bill.

For the bigger budgeting picture, see budgeting methods for FIRE and cutting housing costs.