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Using Your Car For Deliveries Costs You More Than You Think.

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But Probably Not As Much as The IRS Says

I don't know how many times I see it in Facebook and online forums and on Youtube videos: People talking about how much they made, and it only cost a little bit in gas.

Whatever the number is, it's probably not all that far off from the number of people who seem surprised that their car is breaking down.

Hello?!?! Seriously folks, you're putting a LOT of miles on your cars, especially if you're accepting every order they give you. What do you THINK is going to happen here?

And why aren't you prepared for it?

Okay, okay, I'll get off my soapbox of harshness for a moment. But think about it people, it's costing you a LOT more than you think to use your car for delivering Grubhub, Postmates, Doordash, Uber Eats… really about any platform. It's more than just gas. In fact, gas is usually a small percentage of your cost (and that's even when driving a guzzler).

The good news is it probably costs you less than the 58 cents a mile that the IRS is allowing. So that's a thing. A good thing.

Your car is losing value as you drive

How much is your driving costing you in the value of your car? There's a good chance it's costing more than gas.

Try this experiment. Go to Kelly Blue Book's What is My Car Worth site. Enter in the details of your car, exactly as it sits now. When you get to the values, write down the Private Party Value of your car. Now go back to the beginning and do it all over again, entering everything exactly the same but with one difference: Add 24,000 miles to the number of miles you have on your car (if you know how many miles you drive while on deliveries in a year, enter that amount instead of 24,000). What's the difference in the value of your car now? Divide 24,000 by the difference in value, and that tells you how much value your car is losing for every mile you are driving.

I tried this with a 2018 Toyota Prius with standard equipment in very good condition with 18,000 miles on it. The value was $21,491. Running it again with 42,000 miles, the value was $19,516, or $1,975 less. Divide that by 24,000 and that comes to 8.2 cents a mile.

Screenshot of Private Party Value of a 2018 Toyota Prius from KBB.Com

The loss of value is a very real cost to you. The problem is it doesn't come out of your pocket right away, so we don't think about it. But when the time comes to trade in or sell, when you get hundreds or even thousands less for that car than you would if you had more miles on it, that hits your pocket book in a big way.

It costs a lot to finance a vehicle

If you take out a loan to get a newer car, the interest is going to cost you a good bit of money. 6 percent interest on a 20,000 car loan is going to cost you $1200 a year. If you drive 24,000 miles, that's 5 cents a mile. (Though the good news is that the interest doesn't go up with driving more miles).

It can get extremely expensive if you are driving a leased vehicle. On leases, you are typically only allowed 10,000 to 15,000 miles a year, and then you can get hit with 20 to 25 cents a mile for extra miles driven.

And don't forget wear and tear, maintenance, insurance…

Every mile you drive is one mile closer to some kind of maintenance. You need to replace tires more often. You need oil changes more often. You need brakes more often. You need transmission service more often. Almost all of these things cost you on a per mile basis. And here's the thing: you NEED your car if you use it for delivery work, so you MUST perform maintenance to make sure it keeps going for you.

You have all sorts of things that will eventually wear out over time. Some are small items, some larger. You need a regular oil change which is going to average about a penny per mile. A lot of modern cars need timing belts replaced every 100,000 miles, and if that costs $1,000 to replace, that also comes out to a penny per mile. Good tires seem to average around a penny per mile as well. There are a lot of items like changing transmission fluid, changing belts and hoses, shocks and struts, getting alignments, replacing the water pump. It can be anywhere between 20,000 to 100,000 miles between times when these things are needed. Most of these items tend to average between a quarter of a penny to a penny per mile.

A penny per mile isn't much. But when the time comes that you need it, a hundred thousand pennies (or a thousand dollars) IS a lot. And every mile you drive brings you closer to needing the bigger ticket items. These are all things that WILL need to be done to your car.

When it's all said and done, you can expect routine maintenance and repairs to cost you around 10 to 15 cents per mile. I figure that the routine maintenance is about half that, and the unexpected things that crop up time to time make up the other half

And then there's insurance. Now typically insurance is the same if you drive 1 mile or 10,000 (though a lot of insurance companies do take the number of miles driven into account when figuring premiums). A $100 per month insurance policy, or $1200 a year, comes out to 5 cents a mile.

Adding it all up

So what IS it costing you to operate your car? We'll look at two examples, both which are driven an extra 24,000 miles a year for full time delivery work. The first is that 2018 Toyota Prius – say it was bought new for $25,000 on a 4% APR car loan.

  • At 50 MPG and $2.50 per gallon, gas is $1200
  • The 24000 extra delivery miles dropped $2,000 off the value of the car
  • Interest is $1,000 per year
  • Comprehensive insurance that covers delivery work is $150/month or $1800 a year
  • Figure repair and maintenance costs are lower being a newer car, at 10 cents a mile (chances are you won't spend this much this year, a lot of these are things that would happen another year down the line but over the life of the car, it WILL happen). That's $2400.
  • Those items add up to $8400 per year, or 35 cents a gallon.

I'm going to look at my 1998 Buick Century as another option:

  • At 20 MPG and $2.50 per gallon, gas is $3,000
  • The extra 24000 delivery miles dropped $150 off the value of the car
  • No interest because the car is paid for
  • Comprehensive insurance isn't needed, insurance $100/month or $1200 for the year
  • Repair and maintenance higher than a newer car, 15 cents a mile, or $3600
  • Those items add up to $7950, or about 33 cents a mile

So in both cases, the cost of gas is a small percentage of the cost of using your car. And even though the Prius cost a lot less in both gas and maintenance, the loss of value and interest costs offset those savings.

But the thing is, with both cars the cost of gas was just a fraction of the overall cost of using the car.

Notice though that your actual cost of using your car is usually not as much as the IRS allows (58 cents a mile for 2019). Now that can change in a hurry if you are driving a higher value car. Your depreciation (loss of value) is more pronounced. Interest is higher when financing, and you also have higher costs for taxes which figure into the IRS's estimation. But for the most part, a delivery driver's going to be using a vehicle that doesn't cost quite as much as what the IRS allows. That is one of those few chances we have to claim a higher expense than what we really have.

How do we keep from being upended by huge costs on our cars?

The reason it is important to understand the cost of using your car is that it allows you to plan for it. The thing is, you KNOW that when you drive your car a ton like you do for delivery, you WILL need repairs and maintenance.

It still catches people off guard though when it happens. That's because it doesn't seem like a real expense. We only think in terms of the gas and maybe the insurance, the things that we pay out on a regular basis.

The key to avoiding the big surprises is to treat the car expense as what it really is: an expense. If you figure it's costing you 35 cents a mile, but your gas is only 10 cents a mile, don't spend the other 25 cents. Set it aside, because you WILL spend that money eventually, one way or another.

I posted in this article about giving yourself a paycheck, and the process of saving money for things you will need later. In that article I listed saving money for taxes, time off, and car expense. In that process, I recommend having a savings account for car expenses. Every week, take the number of miles you drove the week before and multiply that against your actual cost per mile. I keep using the 24,000 mile example, or 2,000 miles a month, so we'll just keep going with that and say you drove 500 miles last week, and your cost is 35 cents a mile. That means that you're going to put $175 into your car savings account. You do that before you move any of your payments from Grubhub, Doordash and others into your checking account. Now, when you buy gas, you move the money out of your car fund into your checking account to cover that cost. When you pay insurance, when you get oil changes, all of that, you move your money out of that savings account.

If you're doing that, when the time comes you have a major expense item, you have the money for it. When the time comes you sell the car and you didn't get as much for it because of the miles you drove, you have that in your account. When you have issues or repairs, because you know you will, it doesn't create a crisis. You've already paid for it.

It's a hard thing to start. For one, it forces you to admit you weren't making as much as you thought. The thousand dollars you got for your deliveries wasn't really a thousand dollars in earnings. It was closer to $800. It requires discipline, and I can tell you from experience, that ain't easy. But once I started doing that, it got me through some expenses. I know I'll eventually wear out my 20 year old Buick. But that's going to take awhile because I have the money ready when maintenance is needed, so I can get more life out of my car. And when the day comes that that happens, the money I've set aside for repairs is going to make it possible to get a good replacement, without going into debt to do it.

Be realistic about what you are making. But be wise with it. Treat your car like a business asset, give yourself the ability to keep that most important asset running, and that will keep you from getting derailed WHEN (not if, but when) something happens with your car.

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