Name: Email:

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.

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 be 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, we’ll 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 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 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!

8 Reasons Why You Should Pay Cash for a Car
11 Ways to Cut Your Car Insurance
Are You Preparing for Higher Gas Prices?
Self-Employment in the Internet Age
Which Parent Should Stay Home With the Kids?
5 Tips to Go From a Job to Self-Employment

( Photo from Flickr by Chicago Bicycle Program )


14 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. Kevin M says:

    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. I ditched my car about a year ago. No more gas, oil changes, and especially parking tickets!

  5. Kevin M says:

    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.

  6. Kevin M says:

    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.

  7. scott says:

    “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.

  8. Kevin M says:

    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.

  9. bwalzer says:

    @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.

  10. Kevin M says:

    And it gets there for a lot less money! It really does depend on where you live and the type and location of your work.

  11. Mark @ Auto Insurance quote says:

    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

  12. Kevin M says:

    Hi Mark–Excellent advice, thanks for weighing in!

  13. laine says:

    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.

  14. Kevin M says:

    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.

Leave a reply