Financing the purchase of a vehicle is the ultimate goal of many people, but owning a vehicle requires new expenses to ensure that it remains in tip-top shape for many years to come.

According to Investopedia, ownership cost or total cost of ownership is the purchase price of an asset plus the costs of operation. All this is simply saying is the cost of an asset plus any associated expenses related to operating it.

Thus, while the monthly loan payment is the initial planned expense when persons pursue the goal of owning a car, it is one of many expenses that come when owning a car.

Insurance

A motor vehicle is required to be insured by law under the Motor Vehicles Insurance (Third-Party Risks) Act with a general insurer. If the vehicle was financed by debt financing or a bank loan, it would need to be comprehensively insured. Third-party car insurance means that other individuals in the public domain are covered against losses from damage caused by you when operating a motor vehicle. Comprehensive insurance covers both you and the third party against losses and damage from an accident whether you caused the event or were an innocent victim. Third-party insurance costs less while comprehensive costs more.

The premium charged by the general insurance company will vary based on a number of factors. If you’re in a certain age group such as 18 – 29, your premium is likely to be higher if data shows that accidents are caused more by individuals in this age group. Gender, any medical conditions, the age of your driver’s licence, whether the vehicle is new or used, if you live in an area that is a hot spot for vehicle theft, the make and model of the vehicle and the purpose of the vehicle.

Some insurers offer up to 10 per cent discounts if your vehicle has a tracker installed, a dashcam installed or you’re affiliated with a particular group or company.

While you can shop around different general insurers or use an insurance broker to try and find you the best rate, insurance premiums in Jamaica aren’t cheap. Although some companies offer the option to split payments over a longer time frame, these payments can cost more as a sum than one lump sum payment. A $120,000 annualised payment can cost $128,000 if split up into two $64,000 payments. So, it’s best to plan from early how the insurance premium will be paid before it comes due.

TAJ Fees

There is a motor vehicle fee which must be paid annually or semi-annually to Tax Administration Jamaica (TAJ) based on your engine size. For a motor car above 1199 cc but below 2999 cc, that would be an expense of $12,600 annually. Electric motor cars have a flat fee of $9,240.

There is also the certificate of fitness fee which costs $4,500 for a private car which has to be paid annually. Although a driver’s licence lasts for five years, it costs $5,400 for a private driver’s licence and $7,200 for a general driver’s licence.

Maintenance & Fuel Cost

Newer vehicles sold by a dealer tend to come with a maintenance package during the first three years. While this does benefit the owner of the vehicle in the first three years, the subsequent years is when some people wake up to the true cost to maintain a vehicle. Availability of parts, labour and just random events such as a broken windshield or a flat tyre can truly eat into your pocket. Just like insurance payments, it’s best to plan from early to service your car and not delay unnecessarily.

Although a used vehicle might be cheaper than a new vehicle, one should be very cautious and aware of the related expenses associated with maintaining an older vehicle. The way a vehicle is used and maintained is what will factor into the cost to maintain it.

Gasoline for the traditional vehicles is a variable cost that changes based on how much gas your vehicle burns for every kilometre. While prices will change weekly, it is important to plan when you’ll fill up your tank and the size of it as well. Filling up at the halfway mark at a specific location can help keep some cash in your pocket. It’s also important that persons check to see if their vehicle can use 87 octane and not 90 octane. While many persons by default tend to think purchasing 90 offers some inherent advantage over 87, that’s not necessarily the case for every vehicle. Some vehicles require fuels of a higher grade of fuel, but it’s best to research and ask questions than spend extra every time you go to the gas station.

Budgeting

One way to manage these planned and unplanned expenses is to understand cash outflows and having a sinking fund in place. If you use a credit card for certain expenses, an expense today can be pushed down by one to almost two months into the future based on when it’s used in the billing cycle. This means a trip to the gas station can effectively be repaid at a future date while potentially racking up reward points.

A sinking fund is simply money set aside or saved for a planned future expense. If the annual insurance premium is $150,000, setting aside $12,500 monthly helps to prepare for the eventual payment and ensures that one large lump sum payment doesn’t decimate your cash flow at that payment date. If the premium increases, there would at least be cash set aside from early and give you some breathing room if required.

Budgeting for expenses related to owning a car is a smart way to plan for any eventualities and keep you in check with any disposable income left over. Purchasing the vehicle isn’t where the goal of car ownership should end but is just the start of a new journey in convenience and responsibility.