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Ditch Your Car: How Bike Commuting Saves You Money

February 22nd, 2012

Ever wondered how much your pocketbook may benefit from you ditching your car? We have and were excited to read this article, originally posted by Out Of Your Rut. We hope that you are inspired to trade the car keys in for your bike lock, next time you need to run an errand.

“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?”

Read more here.

PHOTO via Inhabitat and via Chicago Bicycle Program.

Every Wednesday on Ditch Your Car we’ll be bringing you just another reason to spend more time on two wheels. Be it a photo, a statistic or an inspirational video, we want to keep reminding you about why riding is great!

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