Wednesday, January 26, 2011

Do you know how much you really spend driving to work

In this post I will try to address a personal finance issue, the costs of using your personal car when commuting for work and several resources that enable you weigh your transportation alternatives. What I won’t discuss here is the cost of car ownership because I think that considering the local geography and specific needs of the contemporary American family, car ownership is a necessity when it comes to activities such as shopping and family trips.
The obvious
The two costs that are obvious to every car owner are one’s car payments and gas. While you may consider buying a used car in order to eliminate car payments for his budget, you have to consider that when you drive to work every day the main quality you are looking for is: reliability. A car does you no good if it breaks down when you needed it most. And when browsing through Kelley Blue book for used vehicles that are no more than 5-6 years old and have less than 100,000 miles on board, I realized that the price tag on a reliable vehicle will probably be around $5-6000. This is an amount that most people cannot afford to pay cash for. However if you do not drive the car every day, you may be able to negotiate and purchase a car for a couple thousands instead and eliminate car payments from your budget.
If your vehicle uses traditional fuel, that is gas, the price trend for it shall worry you. The average gas price in Pennsylvania is little over $3 and unlike 2007 it will not go down. In fact according to president’s Obama State of the Union speech if oil companies lose their subsidies, gas prices will reach the feared $4 /gallon sooner than expected. A way to save on fuel and still drive to work is to switch to a hybrid or electric car. But the price tags for hybrids and alternative fueled vehicles are still much higher than for the average gas fueled car. So while from an environmental point of view these alternatives are great, from a personal finance point of view the trade is not worth since at the current prices one may expect to recoup its investment at best but there is no proof yet that considering both the car price and fuel costs there are significant savings with respect to gas fueled cars.
The not-so-obvious
The three costs most people tend to ignore when writing down a budget are car maintenance, toll roads and parking. And from these three most important is car maintenance. Given the climate of the North East and the Midwest a cautious driver will consider using snow tires during the winter instead of the typical all weather tires.  And even if you can get away with only using all weather tires, as long as you drive the car every day you will need to change them every two years. Same goes for your breaks, rotors and there are the regular oil changes, alignments and registration fees. Now get your bank statements and add all your expenses that are related to car maintenance in last two years. I’ll bet you an oil change that your yearly average is somewhere between $3-500 per year, unless you drive a brand new car with a high price tag.
Of course, if you do not drive the car every day there will be less wear and tear on its breaks and tires and thus your maintenance costs will also be lower.
Rural costs versus urban costs
For most rural dwellers who deal with little or no congestion in their daily commutes the cost of driving to work is a simple equation. They say - I drive x miles round trip  and my car’s mpg is y  and the price of fuel is this z so to figure out how much it costs me to get to work I divide x miles to y and multiply the result with z and that’s the cost per day . So ok , using x, y, z makes it look more complicated than it is but you all get the drill. The main cost related issue that most rural commuters do have is the distance they have to drive to work.
For urban dwellers is a little bit more complicated because the closer they live to the city center the worse is the traffic congestion. And traffic congestion is the worse during peak hours when everybody drives to work and back home. Thus if you figure out your costs  using the simple equation above you are going to miss the time and money you spend slowing down, restarting the car and sitting in traffic. That amount is not that easy to figure out but fortunately the Texas Transportation Institute figured out this type of data  for you. So what does congestion cost you?
To focus only on Pennsylvania:
·         if you live in Philadelphia or the surrounding urban area you are likely to spend another $919 a year due to congestion
·         if you live in Pittsburgh or the surrounding urban area you are likely to spend another $778 a year due to congestion
·         if you live in Allentown or the surrounding urban areas you are likely  to spend $628 a year due to congestion
So, if we disregard the data for Harrisburg, York and the surrounding urban areas that was not available to us, on average the Pennsylvania urban resident spends $775 due to congestion.

Now, assuming you are a PA resident, let’s go over your new car-related expense spreadsheet:

Rural driver
Urban driver
Car payment [1]
Parking and Tolls[2]

                                                        [1] For a $15,000/ 48 moth loan at an interest rate of 6% - auto loan calculator
                                                        [2] A rough estimate since parking and toll expenses will vary from widely from case to case

So, it looks that driving to work can easily cost you over $500 a month. Costly, you think? Very much so indeed, but what alternatives do you have:
Commuting alternatives
For urban residents the first option is public transit - visit your region’s public transit agencies website now
If you live in a small city or on a campus you may consider alternatives that are cheaper and more reliable than public transit such as biking and driving to work.
If you reside in a rural area or a suburb that was affected so badly by the most recent transit cuts that you cannot take advantage of public transportation it may be more difficult to find an alternative. Some people may still bike over 10 miles to work but let’s face it most of us cannot even think about biking that far… But there are alternatives such as vanpools and carpools and several websites that provide comprehensive resources on how to go about it. After all you want to know with whom you share your ride. For start these are the two websites I suggest:
PACommutes a website developed and supported by PENDoT
CommuteInfo a website focused on South-Western Pennsylvania residents and a SouthWestern Pennsylvania Commission initiative
Both websites offer a diversity of options from biking trails and lanes/roads to public transportation providers and vanpools and carpools in your area. You can also use their calculators to figure out which option is the best for you time wise and cost wise.
Using one or more of these transportation alternatives instead of driving to work does not mean that you have to give up your car. This is not about waging a war on cars; it is about gaining back the ownership of your car instead of letting the car own you. It is about having multiple transportation alternatives… And to have access to different transportation alternatives in the end it is about having choices…

Notes and resources
Caveat:  Average expenses for things such car maintenance and fuel are based on my discussion with diverse car owners from across the US. I did not collect or analyze this information as statistic data for the purpose of this paper.
The Urban Mobility Report 2010 developed by the University Center for Transportation Mobility, Texas Transportation Institute and retrieved from:
To locate public transportation options in your area
 you can use this map.

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