Calculating how much money you could save by switching to a car which gets better gas mileage is simple math. However, because other factors normally apply, your car decision is not always simple.
Start with the Math
If you are going to pay more money for a car which gets better mileage, you should calculate how much you will save each month, then use that number to determine how many months of savings it would take before you break even on your purchase.
The variables are miles driven, cost of gasoline, MPG (miles per gallon) and cost of upgrade. If, for example, you are currently driving 1,000 miles a month, getting 20 miles per gallon and paying $3.50 per gallon of gasoline, you are buying 50 gallons of gasoline per month (1000 miles / 20 miles per gallon), thus spending $175 (50 gallons x $3.50 per gallon) for that gasoline. If you purchased a car which got 40 MPG, this cost would drop by half ($87.50), thus saving you $87.50 each month. The question now becomes, “How much should I spend to save $87.50 per month?” A $5,000 expenditure, for example, would require 57 months ($5,000 / $87.50 per month) to break even.
Trying Different Variables
Obviously, as you change the variables, you will get different results. Using the above scenario, if you drive 2,000 miles per month instead of 1,000, your upgrade will save twice as much money each month, thus reducing the break even time frame to 28.5 months. Paying twice as much ($10,000) for the upgrade, on the other hand, would double the break even time (114 months…uggh!)
Because car decisions usually involve more factors than simply saving on gasoline, your decision will be more complicated than what I have shown here. Age of vehicle, maintenance expenses, depreciation (when buying a substantially newer vehicle) and interest charges (if you need to borrow money) should all be considered. However, even with these other factors, the simple math in this post can help you decide how much extra you can justify spending in order to boost your gas mileage.
How important is gas mileage in your car trading decisions? What factors are most important to you? Leave a comment!