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How Much Can You Save by NOT Owning a Car?

Pssst…wanna lower your cost of living — I mean really lower your cost of living and do it for good?

Ditch your car. No, I’m not kidding, ditch your car!

Most people cut costs by trimming along the edges — clipping coupons, reducing eating out, eliminating vacations and the like. But sometimes that isn’t enough. You can cut all of those and still end up with a tightly stretched budget, one that doesn’t allow much room for savings and investment, for debt pay down and payoff, or for a plunge into the career unknown — a major theme on this blog.

How Much Can You Save by NOT Owning a Car?
How Much Can You Save by NOT Owning a Car?

It comes down to a choice between micro- and macro-frugality – do you cut your smaller expenses across the board, or do you target two or three of the biggest? For most people, housing is the biggest single living expense, but cars are a comfortable second. For many, cutting or eliminating car expense is far easier than making the same choice on a home.

How much can you save by not owning a car?

Before we go any farther on this topic, it’s helpful to get an idea as to what hangs in the balance with this move. Let’s take a look at owing a typical car — if there is such a thing.

You buy a new car for $25,000, with a 20% down payment ($5,000) and a five year loan at, say 8% ($406 per month), on the balance.

The $5,000 down payment, often thought of as an “investment”, is nothing of a sort. Since it will almost certainly be wiped out by depreciation—and very early in the process — it’s actually a non-recoverable, upfront expense. Let that sink in for a moment.

As to the annual cost of ownership:

  1. $4,872 per year in monthly payments ($406 X 12 months)
  2. Repair and maintenance, $500 to $1,000 (late model car), so let’s say $750
  3. Car insurance — as a licensed driver you have to have it anyway, but premiums are largely affected by the cost, make and age of your car; so let’s just add another $750 here and I don’t think we’ll be too far off in either direction
  4. Gasoline: if you drive 15,000 miles per year and your car gets about 25 miles per gallon; that means you buy 600 gallons of gas per year, and at the current rate of about $3.50 per gallon, that’s $2,100.

So we have $4,872 in car payments, plus $750 in repairs and maintenance, plus another $750 for higher car insurance, plus gasoline of $2,100. Total? $8,472 – and that’s each and every one of the first five years of owing the car.

Over the five year period of the loan, you’ll have paid nearly $42,500 ($8,472 X 5 years) — plus the $5,000 down payment expense that you paid (and lost) up front — or $47,500 for the privilege of owning your car. If you’re in the habit of buying a new car every five years, well  – you can figure out how that will play out.

We haven’t even factored in tolls, parking, insurance surcharges, license/registration or ad valorem taxes, all of which can be substantial in some jurisdictions. Oh, and here’s another cost most of us don’t think much about…how much income do you have to earn — before taxes — to cover the nearly $8,500 in car expenses you’re paying each year? $10,000? $12,000? $15,000? It all depends on your tax bracket, but that’s the REAL cost of owning a car.

Can you see why this is so much more important than it seems at first glance? What else could you be doing with that kind of money?

Who can ditch their car – and who can’t?

OK, I know what you’re thinking…”this guy’s crazy — I could never go without a car—no one could, not in this day and time!” And you’re absolutely right, not everyone can. But many ARE in a position to do just such a thing, but choose not to and pay thousands of dollars each year as a result.

When should you consider going car-less?

  • You work at home, and there are more people doing that all the time
  • You seriously need to cut living expenses to deal with a debt problem, career crisis or career transition
  • You live in an area that’s well served by public transportation, and/or most of the amenities you need are within walking distance; this is mostly urban areas, but increasingly includes many built-out suburban locations
  • You rent your home and are in a position to relocate close to your work
  • You have no dependents who need to be chauffeured all over town
  • You live fairly close to work, and can either walk, bike, carpool, or take public transportation even part of the way in
  • Your household includes two or more cars
  • You have the kind of driving record that makes car insurance ridiculously expensive

Now I’ll agree that many people are not in a position to do this — certainly people with long commutes, many with children, and those who live in areas with no public transportation come to mind. But certainly many singles, couples without kids, retirees, and especially those who work at home can consider it to be viable money saving option.

Alternatives that can make car ownership unnecessary

We need to be able to get where we need to go, and obviously that effort will be compromised if you don’t have a car. But there are ways to get around car ownership that a lot of people are in a position to take advantage of.

Public transportation. Not every one lives in such areas, but many people do and they still own cars and drive everywhere. But one of the advantages of living in an urban area should be the fact that you don’t need to own a car at all – are you taking advantage of that?

Walk/Bicycle. Part of the reason we feel a need to have a car is that it’s become an extension of our legs – we drive even to the places we could walk or bike to. Not only do walking and biking have long term health benefits, but it’s also an environmentally friendly way to travel.

Work-at-home. We live in a time when more people are working from home than ever, which eliminates the single biggest justification for car ownership. If you work from home it means most other transportation alternatives suddenly become possible.

Own a “beater”. If you work from home, or live close to your job, all you really need is a vehicle for short trips, and a “beater” will fit the bill. Owning an older car means no car payment, no collision insurance, and you can fix it with used car parts and a good backyard mechanic.

Car rentals. I work from home and drive a beater — after all, I have no commute and my trips are short. But there are times that I need to drive longer distances, and when I do I’ll often rent a car for a day, a weekend or a full week or even longer. You can rent an economy car for about $40 a day (or $150 for a week) at major car rental companies, and even less if you do some digging. That’ll get you where you want to go if you don’t own a car, or if like me, you have a beater that can’t handle long trips.

Car pool. The preference is usually to ride with people who work with you, but if that isn’t possible, you can probably find people who work in the same general area. The internet has made this easier than ever. Chipping in $20-$30 a week for gas would be welcome expense money for the driver, and much cheaper for you than owning your own vehicle.

One household, one car. One of the unfortunate cultural norms is that we’ve moved from “a car in every garage” to a car for every adult in the household. That’s an expensive lifestyle! If there are two cars in your home, can you find a way to get by with just one? If one spouse needs the car to commute, but the other works from home, maybe shopping and other trips can be done in the evening, or by some other arrangement that eliminates the need for two cars.

You can combine several of the above in order to eliminate your car. For example, if you could work from home or move close to where you work, you may be able to bike or walk to what ever else you need, and rent a car for long trips. Based on the above it’s even possible to construct a life that doesn’t require car ownership. We’ve covered how much that can save you.

Do you think that living without a car is possible today? Is it something you’d ever thought about? Can you suggest other ways that might enable a car-free lifestyle? We’re looking for ideas here!

( Photo by NCDOTcommunications )


30 Responses to How Much Can You Save by NOT Owning a Car?

  1. I think you are playing with fire here, but I love it!
    I tried this for three months in Vancouver BC and it worked. Ok, the public transportation there is smooth, bike roads are well developed and we were living in the city.
    But reducing the number of owned car per household is a good start.
    And those are in larger cities car co-ops or car sharing are feasible alternatives. Zipcar can be found in many cities in US, UK and Canada. Further sharing options can be found at carsharing (dot) net/where (dot) html.

  2. Hi Attila–When you tally up what it costs to own a car–I mean what it REALLY costs–it’s worth the effort to find alternatives. Cars are an enormous expense, much bigger than we realize and they’re one of the primary reasons why the cost of living seems so high. If we can recondition ourselves to see them in a different and more limited way we can open up a world of options.

  3. I have often thought about what it would be to not have a car. It seems like it might be a liberating experience! However, at the current point in my life, that just isn’t going to happen.

    My wife and I live in Phoenix, a very spread out metro area. Where we live, there is very little within walking distance. Public transit is out of the question (I couldn’t tell you where the nearest bus stop is, or if there is even one around). We routinely drive 20 miles just to get to an area with good restaurants. Etc, etc, etc.

    The one thing we have done for probably the last 8 years or so is only have one car. We have been able to do this because we used to work at the same company, and now we work from home.

    I remember a point in our lives, many moons ago, where we had four cars between the two of us. Two were old and paid for. Two were newer with payments. Ugh, that was A LOT of money going out the door!

  4. Hi Kevin–Congratulations! It must be inconvenient at times but the money you’re saving must more than make up for it. Cars are a habit too, and once you get it out of our life it just isn’t so important any more. We say we can’t do this or that until we actually do, then we find that we really can. It has to be liberating on some level.

  5. Hi Marshall–By owning one car in a two adult household you’re actually doing a modified version of going car-less. You’re cutting your car expense in half, and in the area where you live that’s pretty stinking good, if you ask me.

    Not all areas or situations are conducive to going car-less, but it’s something to aim for. In your case, with both of you working from home it’s easier to do this.

  6. “Gasoline: if you drive 15,000 miles per year and your car gets about 25 miles per gallon; that means you buy 600 gallons of gas per year, and at the current rate of about $3.50 per gallon, that’s $2,100.”

    So you drive 15k miles a year that is 41 miles a day average travel that you want to offset by walking and riding a bike? It isn’t that simple unless you plan on adding 2-3 hours to the length of a day. That average 41 miles a day travel takes you approx. 40-50 minutes in a car but would take you 2:45-3:00 by bicycle and that is at a solid 15mph and even if you were the next Lance Armstrong and could belt out 22mph for the whole trip it would still be 2hr a day getting back and forth.

  7. Point well taken Scott. But I didn’t say this is for everyone–only something for people who can, such as those who live close to work, work from home or are in areas with ample public transportation. It flies in the face of the “suburban lifestye” and perhaps that’s what needs to be reconsidered–it’s a more expensive lifestyle than we generally assume.

  8. @scott

    I think your car/bike speed comparison is relevant for the country but once you hit the city the ratio is less than 2 to 1. That is because bikes and cars go at exactly the same speed when stopped at a light. The slower vehicle suffers a lower penalty when stopped for the same time.

  9. Buying a pre-owned car, just like buying a new car, can be a great experience when you’ve done your research and are confident that the car you are buying will meet your needs and you can feel comfortable about it. There are seven vital things to check before you buy a pre-owned car that you determine once you’ve decided on the make and model that you want. Research before getting to that checking point can involve looking at Consumer Reports data regarding the safest, most durable, highest mileage, best comfort or other criteria that you have determined to meet your needs and desires. These guidelines are for use once you think you’ve found the car you want.
    Mark

  10. I just ditched my car…donated it to NPR. It broke down and decided I didn’t need a car. I live near the Lite Rail and bus service. I live in Phoenix. So far, I don’t miss my car. I can walk to markets and one even offers home delivery. All of my doctors are on the bus line. It got to the point where the mechanical problems were too expensive to fix and I just can’t afford it anymore even though my car was paid off. Repairs and insurance, gas were just too much for my budget.

  11. Hi laine–I’ll bet the money you’re saving more than offsets any inconvenience! But if you do need a car for a trip for a day or a weekend, look into Zip Cars. It’s nice to have a car source for when you absolutely need one, and those days will come.

  12. Good article. I ride a bike everywhere in the city regardless of the weather. I have a decent car for driving out of town when needed (about once a month). ‘Auto’ is definitely not a category in which I spend much money. Plus, I’m in super great shape!

  13. Hi Will – I think you’ve got the whole car thing figured out. What you’re doing is a win on all fronts. I hope you’re not paying much for the car you’re hardly using though ;-)

  14. I ditched my 2009 BMW back in 2011. For one I didn’t want to continue to pay financing and have it stored while I was out backpacking for a year. Since then I haven’t owned a car instead use my two legs, carpool and public transportation. It’s worked out well.

  15. Hi Jason – I’m going the beater route since I live in a suburban area un-served by public transportation. But I’d love the savings that come from not owning a car at all. Not only does that save money on car expense, but since you don’t have a car you can’t go out and spend money on things you don’t need. It’s good on so many fronts!

  16. I gave up cars about 7 years ago. The first few months were hard, but now I can’t imagine going back. We have a great bus system that has bike racks on the busses and they run from 5am to 1am.

    Unfortunately my employer moved to where the bus became impractical. Tried to get a raise to cover my added costs, but they said no. So they lost one of their best employees! Now I’m trying to get work as a musician and working on a sound system I can carry on the bus!

    One other major cost-saving component of being carless is that it takes time and effort to go spend money! There have been many instances when I realized that what I wanted at the time just wasn’t worth the effort! It has saved me thousands I’m sure. No more impulse buying when you gotta haul it home!

  17. Hi Ric – I envy you – seriously! I wish I lived in such an area. If I could ditch the car (yes, even my beater) I wouldn’t have to work outside home at all. Right now I can’t because of the area I live in, but hey that’s always subject to change in my world! (I keep it that way by design – options are always good to have!)

  18. Hi May – Wow, I’m sorry to hear that. But it makes a point of something that I hadn’t covered in the article, and that’s the financial impact of having two (or more) cars. When you think about it, $20,000 is serious money in a middle class household, especially if total income is less than $100,000/year. Even at $100,000, your car expense alone is 20% of your income. Think about what else you could do with that kind of money…

    Taking it a step farther, if you add car expense at that level, to the cost of housing, healthcare and college for your children, it’s easy to see why so many people are struggling despite apparently high incomes.

  19. Having no car is also very mentally freeing. For me, cars always end up being a hassle. Bills, fees, repairs; they never come at a “good” time. Not to mention driving is stressful in itself. Stuck in traffic, trying to find parking, etc. Not fun.

    Another cheap transport recommendation: if you’re lucky to live in an area where it works, a moped is a nice way to get places in the 3-15 mile range quickly and inexpensively. 50cc mopeds usually require no insurance and are very cheap to buy, fuel, and repair. Also they’re fun to ride, can park anywhere, and zip by traffic. However, one downside is safety, you gotta be very careful and alert at all times.

  20. Hi Jo – I thought about the moped idea – right after I hit the publish button! Thanks for bringing it up, it is a viable alternative, at least when it’s not winter. As to it being mentally freeing, I can only imagine. Sure, you’re giving up the convenience of having a car, but you’re also getting rid of a MAJOR expense. That forces you to be more creative, and that always feels good. Most of us under-estimate what we’re capable of until we’re put to the test and come out on top. THAT’S liberating!

  21. We meet several of those contingencies for owning, but I agree that if you can swing this, it’s good for your pocketbook and the environment! When I’ve owned beaters, though, I’ve found I’ve had to pay far more in repairs just to keep it running each month versus loan payments on gently used vehicles.

  22. I agree on the repairs, at least on certain cars. But we’ve never had that problem. We keep the oil changed regularly, and when we do need repairs we can usually find a less expensive repair method. They’re out there if you look. And of course, we only drive our cars a few thousand miles per year. If you have to drive more, than I agree a beater will be expensive, and you certainly can’t go car-less.

  23. I have no problem with people getting rid of their cars. People should do what works for their own unique situation. But this posting clearly compares apples and oranges.

    You point to the high cost of car ownership if a person drives a considerable amount and goes about buying a car the most expensive way possible (buying new with debt). But these costs can be greatly reduced by purchasing used (and with cash). In addition, your estimated annual repair costs are grossly exaggerated, especially for a new car. I don’t know that I’ve had $750 in repairs on one car in a year more than a couple times in my lifetime (and I have owned a series of very old, very high mileage cars). Then, you go on to say that people who don’t need to drive a lot should consider getting rid of their cars.

    The fact is, it probably doesn’t make sense for someone who needs to drive a lot (for whatever reason) to get rid of their car. Taking a bus or using some other form of transportation tend to take considerably more time and are far less convenient. If a person values their time, not owning a car is very expensive. Plus, the cost of ownership is significantly lower for someone who doesn’t drive as much. As a result, a more apt comparison would be to show how much it costs per mile driven.

    Ironically, I hit a number of your “consider going car-less” points (only drive 3k-4k/year, work from home, rent, bus stop less than 100 feet from my front door, and have 2 cars) and have considered getting rid of my car in the past. But I work a lot and see my time as incredibly valuable. The convenience of owning a car is simply too much for me to forgo. Not to mention the fact that the “family car” gets less than half the gas mileage of my car.

  24. Hi Rob – On a subject like this, the apples and oranges conundrum is inevitable. There are so many different possible combinations. The point of the post is to stimulate people to think and act outside the box. I’m not sure most people comprehend what the real cost of owning a new/late model car really is, and when they see the numbers it could be a call to action.

    As to your situation, it’s much like mine. I work from home but own an older car. No public transportation and wide suburban area, but owning the older car saves me thousands each year. I’d love to be able to function with no car at all.

    Notice too that I pointed out numerous options, realizing that this is a broad topic, and there is no one-size-fits all. I also believe that it’s possible to construct your life around not owning a car. That’s not common today, but it is possible.

    The main point overall of course is to challenge conventional thinking.

  25. Over the years I have owned new cars and old bangers for both commuting and pleasure. But I have always considered my vehicles as a masive financial liability with never ending costs. Given the alternative options available, you wouldn’t want to run a business with that level of waste so why try running a household that way!

  26. Hi Natasha – That’s an excellent observation. Cars are a massive expense, and I don’t think most of us seriously consider this, at least not the way we do with other expenses. In fact it might be better to say that a car is a series of expenses like a monthly car payment, insurance, repairs, gas and taxes (my state has an annual car tax). If you can get rid of that altogether you might open up some other doors in life, financially speaking. Not everyone can go without a car, but the stakes are high enough that it’s worth exploring. For now, I’m going with owning an older car, with no monthly payment, and making repairs on the cheap. Working at home, I don’t do a lot of driving, so on our next move, we’ll be looking for a place that may eliminate my need to have a car at all.

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