This is the third installment of my ongoing series: Things that I don’t spend money on.
Cars are super convenient, warm in the winter, cool in the summer, not crowded with strangers, powerful, shiny status symbols. Not owning a car is almost un-American, eschewing all that she has to offer – the wide open country, the spacious suburbs, the quintessential road trip. For a new driver, car means freedom.
On the other hand, cars are responsible for about a quarter of carbon dioxide emissions, their appetite for gasoline contributes to questionable regimes abroad, and motor vehicle incidents are the fifth leading cause of death.
All good reasons for and against car ownership, but the tipping point for me came after calculating how much this habit cost me. For most of us, cars are probably the most expensive depreciating asset we buy. I spent an obscene amount of time commuting for my first job after college, a tolerable amount during law school and then happily turned my car over to my parents upon graduation. In my strategy to eliminate my student loans as quickly as possible, kicking my car habit greatly improved my financial situation. With this one move, I simplified my budget, eliminating a ridiculous number of categories for money to slip through.
Budget categories eliminated after ditching my car:
- Cost of the car/depreciation of the car
- Car Insurance
- Savings for next car or interest on car loan
Phew! With all of these expenses, I tend to think of cars as a liability and not an asset.
Astor buys a new $13,000 car every 10 years. Barack prefers his bike and takes the money Astor spends on cars and invests in a fund earning him an average of 5% per year. Here is where they stand after 40 years.
Astor spends $52,000 purchasing cars.
Barack takes that $52,000 and turns it into more than $200,000.
And these numbers ONLY take into account the very first category of car ownership – the cost of the car. Astor doesn’t actually drive the car. She keeps it in her driveway for show.
If Astor wanted to actually use the car, Barack would leap into the air with excitement. For simplicity sake, let’s say Astor spends $1,000 a year on gasoline, maintenance, insurance, parking, tickets, repairs, etc. Barack takes that money (hence the leap) and throws it into his wonderful investment.
After 40 years, Astor has spent an additional $40,000, but has only 10 extra pounds around her mid-line to show for it.
Astor spends $102,000 on her car habit.
Barack prefers his lower resting heart rate and more than $300,000.
So far I have discussed my savings from refraining from cars, cigarettes, soda, paying interest on borrowed money, cable, coffee, and meat.
I don’t miss any of those items and forgoing them will allow me about 30+ more years of “retirement.”
You’ll never get rich spending money on depreciating assets!