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Wednesday, February 20, 2013

Crunching the numbers. Part 1

As I opened up the internet this morning, as always, Yahoo News from the homepage was the first thing I saw. I usually give a quick look to see if any of the articles catch my interest. One or two usually do enough to make me click. Every couple of days,  one is good enough to get me past the first paragraph.
Now, I am not much for gossip or current events. There is just way too much sensationalism and "lead story,  sound bite" mentality for my liking these days. I don't care who didn't get a rose on The Bachelor or what celeb crashed their car into a telephone poll and what attorney they have hired to get them out of that mess. I will leave that for the masses that want to be mind numbed by that sort of thing.
Anyhoo, this morning I saw an article about car ownership. More specifically, does it make financial sense to own a car anymore? That is something that has been on my mind lately. So, I read it.

http://ca.finance.yahoo.com/blogs/pay-day-/does-owning-car-financial-sense-195402636.html

Even before I read the article I know one thing, intuitively. We pay so much money to operate just one vehicle between two people. Way too much. How much exactly? I am not even sure. But very substantial. And there is a good reason for that. Having a car gives you freedom and convenience to go where you want to go when you want to go there. But, is it now worth it to keep doing that? At least in the way that we currently approach it. Is there a better, cheaper way to get almost the same benefits for a lot less money? I think so, so I ran some very rough top-of-my-head-numbers. Let's see how the math works out.

Let's start with the basics.
First, the actual capital cost/per year of buying a car.
I don't expect top of the line. Never have and we have never bought that, although we could have.
Currently, we have a Honda Civic. Not even the top of the line Civic. Maybe the next level down. My memory is that car cost us,  with all the taxes and licenses, when all was said and done, about 25k. That was in 2008. The car is in excellent shape so far and will probably remain very useful for about 4 or 5 more years. I am going to estimate that you want to replace such a vehicle once every 8 years, and your trade-in value at that point will be very low. Not really worth calculating. 
Using those numbers, a car that lasts 8 years and costs 25k will cost you about 3k per year. Every year. Even in year 7 and 8 when it isn't really worth anything.
Now, we have maintenance. I am going to estimate about 1k per year for maintenance. Based on our bills so far, that is low. But still, that is reasonable. That includes new tires, oil changes, tune ups, brake maintenance and wear and tear, the odd trouble (new battery, alternator, air conditioning and radiator maintenance, windshield wipers, broken exhaust pipe or muffler, etc.), but nothing major like engine,  steering or transmission replacement. Most new cars, for 8 years,  if maintained properly, will not need any major work.
We are now up to 4k per year. Then we come to insurance. I have no accidents or infractions on my record. Neither does my wife. We have no kids on the insurance. We only insure one car.  We pay about 4k a year in insurance. That is the going rate, one that goes up every year. We are now up to 8k a year.
Now we get to the cost of gas. The average family would use, at the current cost of gas, about 50 dollars a week. That is about 2500 a year. So now we are up to 10k plus.  Per year. That is for a very low end car, with no major repairs, for two people with no insurance infractions of any kind to drive a very short distance to work and back in a 4 cylinder car that is maintained on schedule.
Roughly, this works out to $900 a month, every month, for as long as you wish to drive your own car. That is 30 dollars, every day, whether you use the car or not. If we needed two cars, as most families do, that would rise to close to 15k a year, and then that would be $1300 a month,  or 43 dollars a day. Put another way. If your household income, after taxes is about 40k, you spend 25% every year right away to have a personal car,  1 car, at your disposal.
But in reality, we don't need to use that car everyday. Certainly not 7 days a week. On the weekends, we rarely need it both days. During the week, if we were crafty, we would really only need a car ride 1 or 2 days a week. Public transportation would be sufficient  the rest of the time. The question is: How much convenience and freedom would we lose for that and how much money would we save if we decided to completely get rid of the personal cars? 
Here is something to think about.  If you save half of that, which is 5k a year,  for 10 years, you have saved 50k, plus interest. That is a lot of money. Is it worth it? Well, that depends on your perspective and what you have to give up to get it. 
In the next installment of this blog, I will investigate options and how viable and realistic they are.



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