We moved cities and it provoked an unexpected lifestyle shakeup
When my partner and I moved to Melbourne, a city with an excellent public transport system, we soon found we were able to live quite happily without a car. We could get to work and anywhere we wanted to go around the city quite easily by tram, train or bus, and we both had bicycles that we liked to ride. Melbourne is predominantly flat and well served by bike lanes and paths that keep you away from traffic and offer a great way to explore the city.
The only downside to our adopted lifestyle was that if we wanted to transport something bulky or leave the city we were stuck. But was that a good enough reason to buy a car?
The second biggest city in Australia with 4 millon people, Melbourne is blessed with an excellent public transport system
Urban planners have long claimed that cars are parked 95% of the time and various bodies that have tested the theory tend to agree. I’m certain that would have been the case for us as the ease of getting around using public transport far outstripped the hassle and cost of city driving.
Luckily for us, we stumbled across what was then the relatively new idea of car sharing. A service called Flexicar had been started in Melbourne in 2004 by a group of university students and by 2010 – when we discovered it – it had been bought by the giant rental car company Hertz.
It was hard to miss the signwritten Flexicars parked in their on-street pods around our apartment and we decided signing up might be a good stop gap until we scraped together the money to buy a car. At that point we didn’t think too hard about the cost but at a low monthly membership fee that counted as driving credit, a reasonable hourly rate, and with petrol included in the cost, it seemed like a good enough deal. Plus hourly costs were capped at a maximum daily rate and we could take a car for up to three days. Perfect for long weekends away.
But that was nearly ten years ago and I’m now in a position to tell you that car share services are an awesome deal and not owning a car has saved us thousands and thousands of dollars.
We’ve been able to work out that on average Flexicar costs us about $1200 per year. Based on some extremely rough back-of-an-envelope estimates that we figured put owning and running a car at about $4000 a year we decided we were ahead of the game.
Flexicars are parked in the street in their permanent allocated spots and are unlocked via a keypad on the windscreen
We were not even close. Delving into the real costs of car ownership throws up a confronting narrative. If you buy secondhand you can mitigate the damage but if you buy new you’re going to get whacked and if you buy new using loan finance you’re going to get taken to the cleaners.
There are a multitude of resources that will do the numbers for you but here in Australia there is a very handy mobile phone app produced by the Australian Securities and Investments Commission (ASIC) that will do the job for you. It’s available from Moneysmart.gov.au.
Comparative costs of car ownership using the Moneysmart.gov.au app. As you can see, new cars and loans hugely bump up the damage
As a coincidence I received an email this week from a personal financial advice writer called Scott Pape who goes by the moniker of the Barefoot Investor. In his email Scott answered a question from a reader about the car she had bought on finance as a university student but that she still owed $8000 on four years later.
Breaking it down, Scott really put the boot in for someone claiming to be barefoot. As an example he conjured up the ficitional Lucy who gets a loan to buy a 2016 Suzuki Swift for $13,000. The question then is, how much will the car cost Lucy over the next five years? The answer according to the Moneysmart app is $53,765. Wait, what? That’s right, put in all the costs for registration, insurance, loan interest and running costs (including $50 a week for petrol) and that’s where you come out.
Would you rather be stuck in traffic…
And that’s not all, there’s still the dastardly depreciation to account for. It’s commonly understood that as soon as a new car is driven out of the sales yard it is worth less than was paid for it. In fact, new cars can lose up to 20% to 30% of their value in the first year. And then a further 10% for each of the next four years after that. Roughly, that means a new car is worth about half its purchase price after five years.
But even a car bought secondhand is going to lose value over time depending on its condition and mileage. A number of organisations and websites will help you figure this out like Redbook.com.au in Australia or Kelly Blue Book and Consumer Reports in the US.
Or let someone else worry about it while you read or chill to your tunes?
In the Barefoot Investor’s example, that 2016 Suzuki Swift can be traded in for between $4,400 and $5,900 after it has been owned for five years. That’s a further loss of over $1000 per year. Bummer.
In the end poor old Lucy has lost – best case scenario – $47,865 over five years, or roughly $10,000 a year.
Those are ugly numbers and a very good reason not to buy new or take out a loan to buy a car. But even if you save up and pay cash for a car, your real running costs are going to be in the order of $500 to $600 per month.
And, of course, since we joined Flexicar so many more options have sprung up in the form of ride hailing companies like Uber and Lyft and bicycle and scooter share services as well.
I admit that my advice to ditch your car and put that money to funding your dream best applies if you live in the inner city like I do but with the continued explosive growth of sharing services the idea is certainly catching on.
Ride hailing companies and bike and scooter sharing services also boost your car-free transport options
There are also a great many non-financial benefits to going car-free. Your health will improve as you walk and bike more and you’ll get to know your local area a lot better as well as the people in it.
Of course if you’re really not ready or able to say goodbye to your car, maybe it can pull its weight and earn you some money on the side. In Australia, the Carnextdoor platform allows owners to rent out their cars by the hour or the day to registered borrowers. The platform actually offers a guarantee that you will earn at least $2,000 from your car over a 12 month period.
By Ted Gibbons (Editor in Chief)