Many personal finance articles try to get people to believe that very minor changes, such as skipping the morning latte at Starbucks, will lead to financial freedom. While small steps do indeed help, the fact is that many of us should be looking at the big ticket items in life first because that is where smart changes can have the most significant impact. A small number of good decisions on the big expenses in life, such as housing and transportation, will outweigh the effect of a hundred minor decisions. If your boat is sinking, you want to find the source of the big leaks immediately.
One of the most popular websites devoted to personal finance is Mr. Money Mustache, and if you aren’t familiar with the site already, you should probably click on the link and spend a few hours reading it before spending much more time here. One of the recurring themes over the years has been MMM’s focus on making smart choices when it comes to transportation. He advocates using human powered modes of transportation (walking and cycling) when possible, resorting to motor vehicles only rarely and efficiently.
MMM’s concept of the “car clown” culture in the United States may seem judgmental, but if you think about it, people do some crazy things with their cars. Probably one of the most ridiculous examples involves how people take their children to school. When I was a kid in the 1980s, it was common to walk or bike to school, but these days, the number of people queuing up in long lines to drop their kids off and pick them up has reached epic proportions in many places. People will get in their cars and drive a mile or two, and then sit in a long line with their engines running to drop off or pick up their kids, who are no doubt learning that cars are preferable to using any form of human power to get anywhere, to say nothing of the hypocrisy of people who claim to worry about climate change but do nothing to lower their personal carbon footprint. Driving a mile to the grocery store, using drive thru lanes instead of walking into a restaurant, and voluntarily choosing to spend an hour or more of one’s life every single day in a soul crushing commute defies logic.
If we had to construct our perfect existence from scratch, how many of us would choose to adopt this type of behavior? Aren’t many of us trapped in this car culture based mostly on habit and because “that’s the way everyone else does it”?
Why Go Car-Free?
Like many other people who grew up in the suburbs in the late 20th century, I never gave any thought to these questions. Everyone waited eagerly for their 16th birthday and the idea that buying a car was a necessity was obvious. Although walking and biking to school was normal, kids who did so after turning sixteen were not admired. A car was a sign of personal freedom. I purchased my first car before I turned sixteen and have owned five different vehicles since that point, including one absurdly ridiculous vehicle that I’ll probably discuss at some point in the future. But in late 2014, I sold my car and have been happily car free for well over two years enjoying the financial and health benefits associated with freedom from the car clown culture.
Why did I do it?
Not really for the money, at least not out of necessity or due to financial duress. I could easily afford to go out and purchase a $30,000 or even $50,000 vehicle this afternoon for cash and it wouldn’t materially change my financial life. However, I am an advocate of efficiency and simplicity in life – that’s the Spartan mindset. I don’t like clutter and I’m annoyed by the idea of having possessions that do not provide sufficient enjoyment to justify their cost. So I sold my 2008 Ford Mustang GT for $13,850 to a neighbor in my building in December 2014.
I paid $27,239 in cash for the car in November 2007, so the car depreciated by almost exactly 50 percent over seven years, which actually isn’t as bad as it could have been, at least at a surface level, although the opportunity cost of not investing the money in 2007 really means that my net worth is probably $50,000 to $60,000 smaller today than it would have been had I gone car-free sooner.
How Did I Do It?
I have lived near the center of a major metropolitan area for the past thirteen years with no conceivable need for having access to a car on a 24/7 basis. I live about three blocks from a major subway station that has three lines serving the entire region. In addition, cabs are everywhere on streets in my neighborhood and, recently, the density of Uber drivers on the road has reduced wait times to well under five minutes. As if that isn’t enough, there is a bike sharing system that allows anyone to rent a bike for $2 for a ride of up to thirty minutes which can get me almost anywhere I need to go in the area. I also have my own personal bike. And I have my two feet that can be used to walk nearly anywhere I need to go.
Now, I can tell that many readers will be thinking, “this guy doesn’t even have a regular job and he doesn’t have to commute”, and this is true, but prior to 2009, I did have a regular job and my commute was just five minutes and two stops away on the subway. I made a conscious decision to locate myself in a place where I would have a short commute because I’ve always valued my time more highly than having a large amount of square footage in my home. You necessarily get less square footage close to the city than in suburbs, but benefit from lack of a soul crushing commute.
Although I made the right decision to live close to work, I always kept my car. Why? A force of habit more than anything else. I always had a car, and assumed I’d always need a car. There would be road trips I’d want to take. The subway may shut down at some point. The weather might be bad and I wouldn’t want to walk. The list is endless, but unpersuasive.
So, specifically, how did I go car-free? Here are the specific steps I took:
- Sold the car. I guess that’s obvious, but how you go about this step matters. I sold the car privately to someone who lives in my building after advertising on the building’s bulletin board and website. I also advertised on craigslist, but received mostly fake inquiries, including several scams. If you want to maximize what you get for your car, try to sell it privately within your community. Although I did not know the person who purchased my car, living in the same building or neighborhood builds trust. People aren’t likely to sell a lemon to a neighbor they might see in the hall. I was able to sell the car for very close to its Edmunds True Market Value.
- Fixed up my old bike. Although it still isn’t my primary transportation (I use the subway and walk far more often), I made a point to spend about $50 to fix up my old bike which was gathering dust in the storage unit that came with my condominium. I ordered new tires and tubes from Amazon and spent about an hour fixing up the few things that needed fixing on the bike itself. I also purchased a decent lock for about $20.
- Started using Uber when necessary. I gave myself the permission to use Uber freely when it makes sense to do so, and mentally that is a big step toward reducing the insecurity of not having 24/7 transportation at your disposal. I previously viewed taxis to be a waste of money and psychologically I had an aversion to it, but I simply decided that doing so is now acceptable when using the subway, walking, or biking isn’t an attractive choice.
- Signed up for car rental loyalty programs. The main benefit of signing up for car rental loyalty programs is more related to convenience than the money saved from the small discounts that most companies offer. In most cases, you can avoid filling out paperwork each time you rent and greatly expedite the process if you are a member of a loyalty program. I signed up for all of the major rental programs, but I have ended up using Budget the most. I rent a car once a week, on average, and the local Budget neighborhood location is nearby and the staff knows me and expedites my rentals. I’m usually driving a rental car within five minutes of showing up and never have to sign anything.
- Verify insurance coverage. You will need to ensure that you have coverage for times when you drive a rental car or borrow a car from a friend or family member. My Visa and Discover cards offer protection for the value of the rental car and I have an auto insurance policy for a classic car (I’ll write more about this car, which I don’t use regularly, at another time) which covers my liability for rental cars. Avoid using the insurance provided by car rental agencies since that coverage comes at an egregiously high cost.
And that’s about it. The obstacle to going car-free was more mental than practical.
How Much Can You Actually Save?
Obviously, the savings will vary, but in my case it was quite substantial for a number of reasons. Before considering the savings from recurring expenses, I was able to take the $13,850 proceeds from selling my car and add it to my liquid assets. This means that, effectively, I had almost $14,000 more working for me in my investment portfolio than I otherwise would have. My investment portfolio has returned about 11.7 percent per year, on average, since 2000. If I can generate 10 percent per year going forward, this $14,000 should grow to over $94,000 over the next 20 years. That is a substantial amount of money, and probably the most important immediate impact.
In addition to the savings generated by having access to the cash from selling the car, I benefited from the following expense reductions:
- Depreciation. The car was depreciating by about $1,500 per year and the absence of this is very real savings, even if many people prefer to ignore the fact that cars are constantly losing value.
- Maintenance. I like to work on cars myself and handled tasks like oil changes, but I did take the car into the shop periodically for more complicated service and obviously consumable items like tires, windshield wipers, etc had to be replaced from time to time. On average, I was spending around $500 per year to maintain the car. However, the car was getting older and annual maintenance expenses would probably have increased substantially over the next several years, especially as the car’s mileage crept up toward 100,000 miles.
- Insurance. I have a great driving record, but my insurance for the car was still running about $500 per year. This cost was obviously eliminated when the car was sold, and I received a full refund of the amount of time remaining on my policy.
- Property Tax and Registration. My county charges property tax for all personal vehicles. The tax was running at about $350 per year.
- Fuel. From 2011 to 2014, my average annual cost to purchase fuel for the car was around $800. Of course, gasoline was more expensive back then compared to the current price due to the crash in oil prices, so I’d probably be spending only $600 to $650 for fuel today if I still owned the car.
So the total in expense savings amounts to about $3,500 per year.
Of course, I now have some new expenses that I did not have when I kept a car at my disposal on a 24/7 basis, and I have to account for that as well to figure out my net savings:
- Car Rentals. I rent a car about once per week, on average, for a trip into the suburbs. The nice thing about doing this is that my expense is now variable. If I’m traveling, I don’t spend any money on car rentals. When I owned a car, it would depreciate every day even when not in use. I spent about $1,430 on car rentals in 2016, and an additional $230 on fuel. Obviously, I am driving less than when I owned a car – about half as many miles or even less, with a commensurate benefit in terms of carbon emissions.
- Subway Fares. I use the subway a lot more now that I don’t have a car. I spent $380 on subway fares in 2016, although this was higher than expected for a few reasons that probably won’t recur this year. I typically ride the subway several times per week.
- Taxi/Uber Fares. I spent $120 on Ubers in 2016.
- Bicycle Costs. I used the local bike sharing service four times in 2016 at a cost of $8. The use of my personal bicycle is pretty low and probably less than $50 per year, on average.
So I spent a total of $2,168 on transportation in 2016, with the vast majority spent on car rentals. Obviously, someone who doesn’t need a weekly car rental is going to experience far more in savings, but even with renting a car nearly every week, the savings compared to owning a vehicle are substantial.
But Wait, There’s More …
I own a unit in a condominium and the unit came with a parking spot. When I owned a car, it spent almost all of its time just sitting in that spot. Now that I do not own a car, I rent out the spot for $120 per month to one of my neighbors which generates $1,440 per year in income. And not all of that is taxable because the building allocates about $50 per month, or $600 per year, of my condominium fee to maintenance of the garage. As a result, I’m only paying tax on about $800 and my net cash flow from renting the spot is probably around $1,200 per year, on average (more precision would require looking at my tax return and isn’t worth the time for this exercise).
So What’s the Bottom Line?
Based on the numbers above, I am saving $3,500 per year by not owning car plus I am receiving about $1,200 in income from renting my parking spot for a total gross benefit of $4,700 per year. However, in 2016, I spent $2,168 that I would have avoided if I owned a car. So the net benefit is $2,532 per year – or let’s just round that to $2,500 per year.
If you are thinking that $2,500 per year isn’t a lot of money, consider looking at it another way. If you take that $2,500 savings and invest it at a 10% annual rate of return over the next twenty years, you’ll wind up with over $143,000 in additional savings. And taking the $14,000 I sold my car for and investing that at 10% over the next twenty years would result in an additional $94,000.
That’s a total of $237,000 – almost a quarter million dollars.
That is substantial any way you look at it. And it is another example of the miracle of compound interest, which I’ll be coming back to again and again in the future.
But why did I really do it? Having an additional quarter million dollars in twenty years will be nice but I do not think that it will change my life. The real reason I made this change is to live a life of efficiency and minimize complexity and the number of possessions I have. I’m also in better health that I’ve ever been in, not necessarily directly due to the additional exercise from biking and walking, but that was certainly a contributing factor.
I am often struck by how people who claim to care about the environment seem to care only in theory but not in practice. As I can tell from my consumption of fuel, the amount of driving that I’ve done in recent years has been much less than when I had the option, at a second’s notice, to jump in my car and take the lazy way out. Having that 24/7 option to succumb to laziness was not a good thing for me. It detracted value instead. I’m not saying that doing this was based on environmentalism because it was much more related to personal interests. But having less of an impact is also a net positive any way you look at it.
There’s a whole litany of reasons for why a reader may say, “Hey this worked for you, but it is unrealistic for me.” Maybe that’s true and maybe it isn’t and I’m not interested in preaching to anyone, only laying out the case as I see it. If someone lives in the suburbs and has a soul crushing commute to the city that can only be done with a car, then that’s the product of a choice that was made, not an inevitable outcome. And while in the short run, there may be nothing that can be done about the need for a car, maybe that car can be smaller and more efficient. Maybe the household doesn’t really need multiple cars. Maybe a move closer to work nearer to public transit would be a net positive. Maybe living close to schools would give children a better mindset and curb the obesity epidemic. Everything involves choices and we should make those choices consciously, not by default or out of mindless habit.