Let’s assume you do about 5000 miles of commuting a year. It’s a typical miserable commute. But the job is great and come hell or deficit spending, you’ll be there as long as you like. While daydreaming about those glorious TPS reports you get to write every day, there’s a knock on your door. The fellow down the street who you’ve known since Clinton was enjoying his office has an offer you. “If you pay me $20 a week to help me with gas, I’ll drop you off at work and pick you up every day until 2020.” Your friend also offers you his car for those times when he’s on vacation, and should he move, die, or become another OJ, you get his car free and clear. The spouse overhears the conversation and exclaims, “This is great! We can sell the car and become a one car family!” You don’t care because like most employees of Dunder Mifflin, cars mean nothing but transportation to you. Your life revolves around the office. Here’s the question:
Is it worth it? We’re talking strictly from a financial perspective. Those who are spreadsheet savvy may crunch the numbers while the other 90+% can simply swag it. Your late granny’s church car, a Honda Civic HX, cost you only $1000 (she liked you a lot) and in 2020 you can likely sell it for $700. It gets you 35 mpg for the commute. Insurance will likely average $400 a year (rural America), repairs will be $300, inflation is five percent, average gas price is $3, and you can sell the car today for $2500 and invest the money in a money market that will average five percent. Do not share your answers until all pencils are down and no peaking [sic].
Like most deals this one will be broken as soon as the numbers no longer ad up for somebody.
However, to analyze this we see 1040 dollars a year in outlays for 20 years for a grand total of 20800. That seems to beat insurance, gas and maintenance costs (all three are bound to increase over the years, don’t kid yourself) so unless the car provider has a financial vehicle that can reinvest the 20 dollars a week into something that can cover 100000 miles of commuting plus outside trips over the life of the car he is going to be on the short end of the stick.
At some point there will be an increase asked for. Just like with other promised fixed benefit plans that have no substantive backing, only promises.
This is merely public transportation with the twist of home pickup and delivery, but in a private sense.
I’d pass because of the loss of freedom over when to leave for work or to go home, plus the dependence on someone else for transportation is not appealing.
What the hell, word problems?!
Just gas, insurance, and repairs are more than $20/week. Forget the inflation / time value of money calculation, basic arithmatic can solve this one.
If you ride with Steve Carrel:
$20*52 = $1040 / year
If you own:
$400 (insurance) + $300 (repairs) + $428 (gas) = $1128 / year.
Yes, it’s worth it.
Where do you get insurance for $400/yr?
I personally wouldn’t care about the financial perspective of either, as it’s not for me. My last daily driver was retired from service to become an off-road toy (a Wrangler) at the cost of buying a new Honda.
And I agree as said above that I’d also hate to be dependent upon another for transportation to and from work. I don’t even like my wife driving. :)
No need for math for me – I don’t trust people. Period. Most run late, call in sick, disappear just when you need them. When, where and how I work and the hours I put in represent my work product. I can’t afford to trust that to someone else. I know that wasn’t one of your options but having a car (and making payments) is like insurance to me. It covers me handling my business the way I want it handled.
break even. Therefore, keep your car.
> Where do you get insurance for $400/yr?
Easy. Have 100/300/100 liability-only (no comp, no collision) in some podunk area or smaller city.
Also, helps to drive a sub $5k car, which makes perfect sense in Steve’s scenario.
Keep the car. Pooling is all fine and good, but sometimes you just need to be on your own. Or what about circustances like the car owner being ill, you needing to leave midday for some reason, or you need a car on the weekend while the wife is out doing her own thing? If the car’s cheap to hang on to, I would.
Sorry…the question can’t be answered due to insufficient data.
Stipulated: “you commute 5000 miles per year.” But as we know, there’s more to life than the office. More data is needed here for both this driver and any other family members before the equation is solvable.
– Is another car available (wife, roomate, etc) for errands, shopping and emergencies?
– How much non-commute weekday driving is needed
(township meetings, kids to school, etc)?
– How much weekend and holiday driving is done?…kids to “away” swim meets? Scouts to camping? Church travel? Big dinners with family in another state or just across town?
The non-commute usage may or may not exceed the Mon-Fri miles; either way, it makes a difference in the computations as it will affect maintenance costs, insurance, fuel costs, etc.
“Teach, Joey’s cheatin’ ..he’s lookng at my paper. No fair!
….and do we get to go home early when we finish the test? “
It’s easy to make going carless work when you are only considering a commute.
I am close enough to bike to work, but I don’t consider that an excuse to get rid of my car, simply because I live in New England and it gets kind of nippy here sometimes. Even if I had a guaranteed ride to work every day for life, I’d need a car to run errands, visit friends and family, etc. Zipcar et al aren’t an option because I live in the sticks. So either I need a car or I become a frequent flier at the local rental office.
Assuming that you can tolerate the neighbor as a carpool buddy, I’d do the deal and keep the car. I’d see it as a way to be a bit more environmentally friendly while saving wear and tear on my car, which effectively allows my car to last longer.
I actually had a similar arrangement to this for a time, when I basically carpooled as the passenger most of the time, in exchange for my cash. It was a really good arrangement, even though the fuel costs at the time were quite low and not a factor in choosing to do it. Just the ability to defer certain repairs and maintenance alone made doing it well worthwhile.
But I wouldn’t do something like this and dump my car. Once can’t possibly predict how long this arrangement will last.
A sound financial deal as long as you have compatible working hours. A buddy of mine has made a similar deal and it is working out just fine for him.
This only works if you’re still in school.
What’s the point of making a calculation based on absurd premises? $1,000 for a cherry Civic HX? 5% inflation? $300 for repairs and maintenance for 5,000 miles?
Plus you didn’t give opportunity costs. Riding as a passenger on commutes and not having to deal with managing the vehicle your friend lends you are big time savers, so what’s the value of the person’s time? A lot of that depends on what they do for a living and how much they’re compensated for it and whether they can make productive use of that extra time. Regardless, one’s time has value.
The 5% money market assumption is also specious because someone could just as easily put it in an index fund and achieve better long-term performance with similar risk. If the person committed to this lifestyle for his or her working lifetime, the midterm stock market fluctuations would have no effect on the superior return an index fund would generate.
The rate used for the money market is essentially a T-bill rate, though a bit higher, but T-bill rates historically are closer to 6% than the rates they are now.
You’d also have to factor in the risk premium of exposing oneself to gas price fluctuations.
And $400/yr for insurance? Only if you’re married, middle aged, nothing on your driving record, a long-term customer of your insurance company, and you have a multi-car discount. And even then, $400/yr is very lowball.
There’s also titling and licensing costs, as well as parking.
Lastly, you’d need to know how many non-commuting miles are being substituted for by borrowing your friend’s vehicle.
Time = Money. Unless you’ve got some kind time clock job and a boss or customers who never keep you late, there’s no deal here.
Using your scenario, the net present value (NPV) of the “pay your buddy” option is – $7,107.82.
The NPV of “use your granny’s HX” option is -$12,496.34.
I have a more pausible scenario.
Jenna Jameson, Pam Anderson and Salma Hayek are moving in next door and they tell me that I can “come over anytime (wink wink)” for as many years as I can hold on.
They tell me to sell it to my wife as; she has more time to clean and do the dishes with none of the “demands” that I may put on her.
For the B&B discuss.
Offer to alternate whose car you use to commute on a daily or weekly basis. You pay him nothing and keep your car, but fuel and regular maintenance costs are cut in half for both of you. (I assume your maintenance costs were lumped in with repair costs in the numbers?) Reduced wear-and-tear should allow you to keep your car longer or sell it for more money down the road.
As others have said, it’s unlikely that the proposed arrangement would really last for 10 years. Once the neighbour pays off his car loan he won’t need you any more, or maybe he doesn’t care if you drive his car when he’s away because it’s a rolling wreck. Also, living in a rural area with one car, you’ll find out how much it sucks when your wife has taken the car out and you just discovered you’re out of Advil for your migraine.
This hypothetical commuter should be aware of another potential cost if he goes car-less: My friend is a stay-at-home dad and his wife has a company car (minivan). He rarely drives, but keeps his ratty old Jeep in the driveway with licence and minimal insurance. Why? He told me that if he goes for too long without a policy in his name, he would lose his 18 years of driving history. The insurance company will rate him as a new driver when he eventually decides to buy a car.
Funny, too, the “$20 to help me with gas” assumption – that comes to 20.9 cents per mile. If you were picking up all the gas, that means your buddy’s ride gets a shade over 14 mpg. If you’re picking up half the gas, that translates to 7 mpg.
Why’s he commuting in an M-1 tank?
This entire scenario is so embedded in pure fantasy that it may as well be a debate between the merits of two particular breeds of dragons.
Exactly Jason, and that is why I proposed my scenario.
I was told there would be no math.
70 Chevelle SS454 :
I was told there would be no math.
All of life IS math!
Me, I’ve determined that the deal is not a good one, not even at half the money. I often run errands on the way to/from work, therefore with the deal, I’d have to wait until he drove me home before I could run my errand. Highly inefficient.
It’s an even worse deal if I don’t get to choose the radio station…
The question is “How much do you value your time?” Because at, say, 50MPH avg commuting speed, you are relieved of driving for 100 hours per year. I would appreciate not driving myself to work and home every day (as long as he’s a decent driver – I’m not a great passenger.)
only 5,000 miles of commuting a year? wow, i’m jealous
only 5,000 miles of commuting a year? wow, i’m jealous
6,000 is actually typical.
Tosh is on to something there on the value of freeing up time. Assuming you can read, play with you laptop, iPhone or whatever this time has value.
When I was a full time student and part time bureaucrat in Sacramento I was happy to take light rail even though it added roughly an 45min/day to my total commute versus just taking my car downtown. That was 45min that I could use for reading & homework rather than the aggravation of congested urban freeway driving.
Economically it was a slam dunk, as my heavily subsidized light rail pass was $25/month vs fuel cost of $90/month.
A lot of great answers. Even though this question has a mathematical foundation, it’s really the questions of your lifestyle and preferences that determine your decision.
Do you still value having your own ride during commuting times?
Do you fear not having access to transportation during the day?
Do you hate maintaining a car that you only really use for an unjoyful commute?
Do you trust ‘the other guy’ in this equation?
The answers are like waves. No two people will have the same exact level of priorities which makes the answer far more interesting than simple number’s crunching. One other thing. This scenario is very much rooted in reality for yours truly.
Back in 2003 I considered working for a company that is only nine miles away from home. There are plenty of folks in my street who drive through the same route during the week and it’s just a downright lousy drive.
In the present day, auctioneers and dealers will often combine together for rides if we have to go through more than one sale during the day. If I hadn’t been sick this afternoon I would have driven my Insight up to north Georgia with a wholesaler I’ve known for about 10 years now. It’s usual to pay for dinner or gas given that you effectively save time and/or a tow of a purchased vehicle for that person.
Anyhow, the numbers. Here’s what you have to work with.
Purchase Cost 1000 Ten Years Sell for $700
Miles 5000
Annual Gas Cost ($3/Gallon) $428.57 (average)
Insurance $400 (average)
Repairs $300 (average)
Opportunity Cost $2500 now $1570 from not investing the $2500 given a 5% return (nominal)
Round-Trip Commute 20.8 miles
In my initial draft I thought I had put down $50 for fees (registration and possible emissions) but state fees are a wildly variant figure and it wouldn’t change the final outcome. For the sake of simple numbers crunching I left out an inflation rate of 5%. If I had it would have made everything impossible for those who don’t have a financial background. Those who do would have used NPV anyhow.
Assuming these parameters, you end up with approimately $12,000 (it depends if you adjust gas, repairs and insurance for inflation and whether you apply opportunity cost for those expenses) vs. approximately $8500 depending on whether you start to carpool now vs. a later time and how much vacation time you enjoy at Dunder Mifflin.
The big point is this. If you’re established in what you do and hate your commute, try to avoid owning a second car. Even up to the early 1990’s a third of families only had one vehicle. The expectation of having a second vehicle is a fairly recent one and unless you have a real cheap clunker that you work on yourself, the economics simply don’t make sense.
The little point is opportunity cost. For a lot of ‘non-enthusiast’ folks, the opportunity cost of having a second car over their lifetime is well into the six figures. In the future you may even end up spending less on gas than the cost of not investing that money. As a frugal fellow who hates commuting in a metro area, it would pay to not have to divest your money into car ownership if you can help it.
One other sidenote for those who love cars. Even if the commute sucks If you’re a trader and can make money with your commuter, it makes money to keep it. If you have your own business, so much the better. For those who took that into consideration, congrats. You’re even sharper than I was when creating this whole mess.