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ITSBITS Catapult Garage Software
Car Cost Tool

Purpose Of The Tool

Thinking of buying an expensive new car? Are you sure you know what you're getting in to financially? In the ITSBITS® Catapult Garage you'll find the Car Cost Tool. In a few minutes you can see what the real cost of that expensive car is. Depending upon your age, you'll probably be really surprised to see the effect of that new car on your future.

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Start The Tool

On the welcome/start up screen of the Catpult Garage software, use the Tools menu option for Car Cost. The program will startup with a screen like the one shown below.

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Using The Tool

In order to explain how to use the tool, we'll go through the different parts of the screen, starting on a new dream car with the upper-left section that looks like the image at right. (If you're working with data you've previously entered, you can click the eyeglasses-icon button or the folder-icon on the toolbar to browse for the car's file you want to use.)

Getting back to our first new dream-car run, we need to develop a forecast of how the car will (or won't) hold its value. What we'll do, since the crystal ball has a crack in it, is take the same car at different ages and see what it's selling for. We'll assume it'll pretty much follow the same pattern in the future that it has followed until today.

So, this is the section of the tool where you state the values of your dream car today, and at 5 annual steps, i.e., when it is one year old, 2 years old...5 years old.

Note that this is, by definition, estimated information. You'll have to admit that the rationale is pretty solid unless you're looking at a brand new type of car. In that case, you must find a couple of similar, existing cars and use their history to estimate what this car's resale values will look like.

So, you may be asking, how do I get these resale values?

Notice the menu items across the top of the tool. The 2nd one is "Prices-Online" and it will drop down a menu like this:

What you'll see here is a group of websites where you can find your pricing information. Since different data sets are used as authoritative in different regions, you should ask your bank or credit union which one is prevalent where you are and use that source. In fact, a friendly banker can probably give you the information so you don't even have to look it up. Just tell them you're thinking of purchasing your dream car and you want to get an idea of what its resale values will look like.

While you're talking to your banker or your car dealer, ask them what the sales tax is on a car sale. (Since politicians are inherently greedy, most areas now have such a sales tax.)

Speaking of which, most areas have a tax percentage built into the car tag costs now. The rest of the tag cost will be the same for an old clunker, but that tax percentage can make a sizeable difference. Your car dealer can tell you what it is as can the place where you purchase your car tags.

Next comes a call to your automobile insurance agent. Tell him/her you're planning on getting that new dream car and you're looking to see if you can afford it. Ask for the indicated insurance costs on an annualized basis.

Now plug all of the requested values into the program including your (honest) expected gas mileage and how many miles per year you drive. A word about gas mileage is necessary. To get accurate information, you need to enter data that is accurate...not optimistic or full of bragging value. Seek out what you believe will be the real gas mileage of the car--not what the EPA says (your mileage will vary and it's always much less.) Use the internet and try to find accurate gas mileage figures. In fact, if you're not able to find what you feel are good gas mileage values for the vehicle in question, just take the lower EPA value and multiply by 0.7 to get a fair estimate of what it will really give you.

Enter a name for the car using all numeric and/or alphabetic characters, e.g., "2012 Magnificent" or "2012 Letus Spend." This name will be used to store the data for the vehicle. Because of this, don't try to use special characters in this block--just A-Z and 0-9. Once you have all the values in this upper-left block as you want them, click the little blue disk icon or use the menu option "FILE >> Save this car's file" so that it is saved to your hard disk. Then move to the lower-left block.

In this block, you're going to enter data for a cheap alternative. This can be a new, inexpensive, smaller car or a used car a couple of years old. The point is that we're looking at a car you could use to get around. It wouldn't be that dream car, but it would get you there and back reliably, comfortably, and at low cost. This kind of car varies according to your needs--4 kids? No kids? Lots of long trips? 99% local driving? Carry lots of tools or expensive stuff? There are many questions to answer and since each person's minimum vehicle will vary, you'll need to do a little research to see what you'd use and how much it would cost to buy it.

The first tag will often cost much less than the 2nd--annual taxes are not included. Your car dealer can tell you what to expect. Enter your 1st tag's cost. If there are any other fees, i.e., title cost, add them to the tag cost and put that here.

Enter what annual insurance costs will be if you were to get this vehicle.

Assuming you'll have to borrow money to purchase this minimum-usable vehicle, enter the interest rate and the number of payments you'll have to make. Take note that many times the interest rate will be higher if you're buying a used car because the bank believes it won't last as long as a new one.

Finally, enter the gas mileage you can actually expect to get while driving this vehicle. The comments on gas mileage (see above) track here.

Once more, click the little blue disk icon or use the menu option "FILE >> Save this car's file" so that it is saved to your hard disk. Then move to the upper-right-hand block.

The upper-right block is where we'll cover the rest of the data associated with your dream car. The first block you'll enter is the trade-in allowance you're going to have from your existing vehicle (if any.) Note that you can't necessarily get an accurate picture of this without going through the pain of talking to a couple of car sales places. Your banker can give you some indication, but the chances are that you'll actually be offered no more than the vehicle's wholesale price...it's how they make money to buy their own groceries.

If you have any cash that you're going to put into your down payment, enter that amount.

The first tag may cost much less than the 2nd--annual taxes are not included. On the other hand, it may cost considerably more in your state if sales taxes are included. Your car dealer can tell you what to expect. Enter the cost of the first tag you'll have to immediately purchase if you buy your dream car. If there are any other fees, i.e., title cost, add them to the tag cost and put that here.

Assuming you'll have to borrow money to purchase this vehicle, enter the interest rate and the number of monthly payments you'll have to make.

Once you have all the values in this block as you want them, click the little blue disk icon or use the menu option "FILE >> Save this car's file" so that it is saved to your hard disk. Then move to the block below this one, "Exploration."

Here, we're going to try out our crystal ball again. How much do you think fuel will cost/gallon during the period of your loan? Remember that fuel prices defy gravity--they never come back down for long. Enter your age (in years). Click to save the car's file again.

Now you can actually use the data to see what you're doing to yourself. Normally, you'll want to click on "buy new vehicle" and check the box to "buy minimum-usable vehicle and invest the difference."

Now you're ready to run the data. Click either the lower-right button labeled "Process" or the "gears" icon on the tool bar. You'll see the yellow boxes filled in using the data you've entered.

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Now, let's take a look at what the data means after you run it. We'll use a dream-car, the 2011 Magna Carta vs. a cheap, used car to build our example. (The values for the imaginary car, the "2011 Magna Carta" are included with this program so you can see it in action and follow the docset below if you so desire.)  Our upper-left section comes out like this:

So our lawyers are happy, please, note that this data is completely made up--it has no relationship to any known real auto and the Magna Carta does not exist. (Any apparant relationship to any real car is purely coincidental.)

Next is the lower-left area which comes out in our example looking like this:

Here you'll see we're looking at a 3-year-old $15,000 vehicle. As you'll see in a minute, we're assuming a real trade-in value of $23,000 for our existing vehicle. We've used that same value here. In addition, we've assumed that we have an additional $3,000 to put down on the car...we're using that here, too. Based on the data in the upper-left area, we calculate the sales tax. We also put in our first tag's cost and what we'll pay for insurance each year.

When we're finished with all this, we find that we can purchase this used car and keep $10,322 "in our pocket." Hold that thought.

Because the vehicle is 3 years old, we assume a value at the end of our loan term (if we bought the new Magna Carta) that is drastically depreciated. Notice that means the depreciation cost of our $15,000 vehicle is $9,000 after our loan period is done. (You'll see in a minute that the loan period is 60 months or 5 years.)

The next text box shows we used part of our $23,000 to buy the $15,000 vehicle outright. Below that, we see that we didn't put any more of our cash into the actual purchase price--we didn't need to. Dropping down, however, we could not avoid the tax man either for sales tax or annual tag taxes. We also had to pay our annual insurance costs. (A note about insurance costs is in order. Because the insurance company has only $15,000 at risk here--assuming we cover our equity--the cost to insure this vehicle will be considerably less than for the Magna Carta dream car. That's how it works.)

Next comes vehicle maintenance. Here we're assuming a higher percentage of the car's cost will be spent because it is older. It will probably need new tires, a new battery, and a number of other maintenance-cost items that a brand new Magna Carta wouldn't need. If the car were newer, you might see us use a 3% value here, but regardless, we'll include a higher percentage than for that Magna Carta.

Since we had no need for a loan in our example, there's no interest costs to add. If we'd had a loan showing, this value would not be zero.

Expected fuel costs is fairly obvious and when we add all this together we find that to drive our $15,000 vehicle for 60 months will cost us about $42,000. Surprise! Surprise! But Wait. It gets better when we move to the upper-right and look at buying that beautiful Magna Carta.

The methods used here are the same. About the only thing worth noting is that we used, as we said we would, a much lower maintenance percentage--just 1%. But, notice that driving the beautiful new $86,000 Magna Carta for 60 months costs almost $113,000! That's a premium of about $70,000 and instead of having held onto $10,000 we gave away over $21,000 for nothing but interest. No wonder the bank wants you to buy it.

But wait! Remember that we checked the box to invest the difference? That brings us to the last block on our tool.

There are 6 pieces of information here. Let's explain and consider each of them in turn.
  1. To begin with, notice that we are investing the money not in a bank at 3%, but in a professionally-managed fund that has historically paid a 12% or higher annual return. (Such funds are tied to the stock market and there is never a guarantee that they won't lose money. Annual returns can certainly vary.)
  2. The initial investment amount involves the difference in cash we have between buying the new Magna Carta and the minimum-usable vehicle. We use this money, if there is any, to open our investment account.
  3. Here's the first part where people fall down. You've said you could make the payment and additional costs for the Magna Carta--in our example, it's a monthly amount of $1,513.36. So, we're investing this difference between the 2 vehicles' monthly payments in our fund each month. To insure that this happens, you should use a bank draft for the monthly deposits. Remember, it won't hurt one bit worse to pay yourself than to pay the bank...in fact, as you watch your savings grow each month, it will be a lot sweeter paying yourself rather than the bank.
  4. The next box shows the amount that will be in your fund at the end of the 60 months when you would have been paying off the Magna Carta. In our example, you didn't spend over $112,000, but you did save $142,347--a combined difference of $254,347 after just 5 years.
  5. Now, we'll assume you don't add one red cent to your investment account (foolish, but we're out to see what that car really costs.) So at age 65, you can see what it will have grown to be...over $4 million dollars for a 32-year-old. Surprised?
  6. Add the amount at age 65 to what the car costs to drive for 60 months and you finally have the true cost of driving that dream car for 60 months--$4,143,079. Wow! That could have been a lot of neat trips, shows, etc. It could have been a lot of things that would make retirement living nice.

So are you sure you really want that new Magna Carta? Or would you rather retire early and have a great life in retirement? That's the choice you're really making each time you spring for that expensive dream car.

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