I am paid $26/hr to take the bus

This isn’t a joke, I make roughly $26/hr taking public transit. I’m not paid by the city or ETS or any green organization — I’m paid by myself, with the money I’m not spending on a car.

I take the bus and/or the train every single day. Assuming a 20 minute commute, there & back, that’s about 40 minutes, 7 days per week. This works out to roughly 20 hours per month.

Now, to do this calculation we have to consider the alternative: car ownership. Very, very, very few people recognize how abhorrently expensive owning a vehicle actually is. They will purposely deceive themselves, make wild justifications, omit essential calculations, all in the name of keeping their car. Oh I know, it’s so convenient and you need it because you live out of town or whatever, but some vehicle owners are just kidding themselves.

Here’s a fun scenario to prove my point!

First, let’s pretend I own a modest used Mini Cooper (my secret obsession) that cost $15,000. I put $1000 down when I bought it, and am now paying down the remaining $14,000 on a 5 year loan at 5.50%. This works out to $267 per month. Totally affordable, right?
(sidenote: this will cost $2,047 in interest over the life time of the loan, bringing my total car ownership up to $17,000 after it has had 5 years to depreciate in value. AWESOME.)

Let’s say I’m pretty good about driving and only spend $100 each month on gas.
Insurance is also around $100 each month, because I have no accident history.
For maintenance (license & registration, car washes, oil changes, tune ups, tire changes & rotations, any insurance deductibles in case of accident, repairs, etc.) I spend about $600 a year, or what works out to $50 each month.

I’m now spending $517 each month to own my car. That’s the same $517 I would be saving by forgoing car ownership and using public transit. That amount divided by the approximate 20hrs I spend on transit each month works out $26/hr. Ok, I’m cutting one corner here because my bus pass is paid by my tuition, which is paid by my graduate student stipend, so it’s essentially “free”, but if I had to buy one for $86 each month, my net would only work out to about $22/hr. A little bit of a pay cut, but nothing I can’t live with.

I know, I know. Your car payments are smaller, you spend less on gas, and the price is worth the convenience. That’s not necessarily the point: even if your car is costing you half of what I presented above, you’re still probably paying too much.

The real kicker is when you pretend you went without a vehicle, and instead invested that initial $1000 down-payment, plus the $517 each month for 5 years. Even if you did so in the most basic savings account that are boasting an interest rate of only 1.5%, you would yield — wait for it — over $33,000. That’s 2x the value of the car in cold hard cash, even though you invested the exact same amount of money.

If you want to play around with your own car loan calculations, try TD’s auto-loans calculator. You can adjust the loan amount, interest rate and length of term. It will give you your monthly payment and the total interest over the lifetime of the loan.

To determine how much you can save by just-saying-no to car payments, insurance, gas and maintenance, try out ING’s savings calculators. Here you can put in an initial investment, determine a monthly, weekly or biweekly contribution, and it will tell you how much you’ll have in the end.

What I want to know is, why is it normal to take out a 5 year car loan, but abnormal to save for 5 years to buy a car? Buying a car with cash would allow you not only to get a nicer car, but you would significantly reduce the monthly cost of car ownership plus avoid wasting money on the interest of a loan.

Join me on the bus!