Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
Odometer

Creative Commons License photo figure credit: michaelrjohnson

I do a fair amount of traveling for work using my own vehicle. Whenever I do, my company reimburses me on a per mileage basis. I have the option to enter my actual costs, but since these are generally much harder to figure out, I tend to use the per mile option. The IRS periodically updates the Standard Mileage Rate, which is the rate recommended for businesses and business deductions.  This rate goes up and down, and is presently at 58.5 cents per mile.

This rate is meant to cover the total cost of the use of a vehicle: fuel, wear and tear, periodic maintenance, etc.  Something that has never quite sat well with me, however, is how to use this reimbursement for anything other than the cost of fuel.  By my calculations, it only costs me about 6.1 cents per mile in actual fuel costs, less than 1 cent per mile for oil and tires combined.  So what is the other 50 cents per mile to be used for?  I suppose that some portion of it should go towards insurance, and maybe even the cost of the car.

Up until now, however, I have been failing to allocate any of that extra 50 cents to anything in particular.  It doesn’t show up as a budget item, and therefore simply ends up in our general slush fund.  Since this is extra money and we won’t miss it from our budget, it occurs to me that I should be using it for something vehicle related.

The two most obvious choices for this extra money are 1. making extra payments on our existing car loan, and 2. adding to a future vehicle fund.  I’m inclined to opt for option #2 since it adds to our overall savings and does not tie up cash in a low interest loan.  This is especially important in the current economy where anything can happen at any time, and with ScrapperMom out of work.

Do you travel for work and collect mileage reimbursements?  How do you allocate the “wear and tear” portion of the mileage benefit?

2 Responses to “Allocating Mileage Reimbursements”


  1. Dubes Says:

    In my experience at a former job, the vehicle reimbursement was also difficult to figure out where everything was “going” in my bank account. However, the reimbursement was figured using variable and fixed components. It is usually based upon the costs associated with a BASE vehicle to ensure the program is equitable to most every driver:

    Here is an example…

    Operating Cost Calculation(Variable):
    Standard Miles per Gallon for auto class (for my class as a Manager): Approx 21
    Normal fuel price per gallon: Varies (for this case $2)

    So, variable reimbursement per mile would be reported out similar to:
    Fuel per mile (usually calculated as 50% where individual lives/50% where individual drives; based upon annual estimated amount of miles driven): $.0952
    Maintenance per mile(manufacturer recommended maintenance over estimated retention period of car - parts and labor): $.0441
    Tires per mile (seasonal radials being replaced every 35,000 miles, plus balance and rotation - parts and labor): $.0192

    In this case it adds up to about $.01585 per mile driven…

    Fixed Cost Portion(those costs incurred simply by owning the vehicle, incurred regardless of driving 1 mile or 5,000)
    Insurance: Comprehensive, Collision, Bodily Injury, etc. = avg. $1,929/yr
    License and Registration: In MA $66
    Excise tax: $286 per year
    Annual Vehicle Cost (relects Depreciation - the average annual decrease in vehicle value from the time it was new to the time it is sold - a projection of depreciation that is expected to be incurred over a certain “retention” period; regulated by IRS): $5,111

    The Total fixed cost component is calculated by adding these components (with an adjustment factor to account for regional additions/subtractions) to total $7,763. Most plans then take a percentage (in this case 75% of fixed total): $5,822. This amount divided by 12 would be $485.19 per month. Divide this by an estimated number of miles and that would account to an estimated average fixed cost per mile driven. It ends up being quite a bit more than we would originally think…

    In my case I received a fixed component of approx 15 cents per mile (varied based upon monthly cost of gas), and a monthly fixed component which varied annually ($485 per month)…

    Now where did all that reimbusement money go????


  2. MITBeta Says:

    Dubes:

    My head hurts after reading this… but thanks for sharing!


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