My last attempt to avoid buying a car

As my debt goes down and my life continues to become more unmanageable without a vehicle, I’m trying to find ways to get along without a car until I can afford one. Up until recently, my strategy for living car-less in a very pedestrian unfriendly city has been:

  • taking obscenely long rides on public transit
  • making family drive me around as necessary
  • simply not going to something when I can’t get there =(

Unfortunately for me, this is unsustainable. So last week in a last ditch attempt to avoid buying a car, I signed up for a car-share program that will let me rent a vehicle for everything from a few hours for a trip to the grocery store to a weekend to take a trip to the mountains. The downside is that now my transportation costs will go up. I expect that I will probably be renting a car through this program a few times a month, and that’s going to cost me anywhere from less than $100 to… well, maybe a few hundred dollars each month. What I’m going to try to find out is, is it cheaper to rent a car occasionally than to buy one of my own?

 

beep beep!

Costs that I’m currently avoiding by using a car-share are:

  • car payments
  • fuel
  • maintenance
  • insurance

 

Well, I’m not really avoiding all of those because they’re included in the rental fee, but it’s a fraction of what I’d pay for ownership.. or is it? In the past year I’ve considered everything from a used Mazda 3 to a Lexus SUV. My dream car is still a Mini Cooper (see photo above!), even though I feel they’re somewhat impractical.

Gas, maintenance, and insurance depend on the type of car I buy. Of those things, insurance is probably the most variable. Your driving record affects how much you pay, but you also have some choices to how much and what kind of insurance you purchase. I’ve had friends try to cut corners by only purchasing collision insurance and forgoing comprehensive insurance. This will lower your monthly payment but also leave you responsible if anything else — like theft! — happens to your vehicle. When I buy a car, I wonder how my driving record will affect my insurance premiums. I’ve had my driver’s license for 10 years, but I only owned a car and drove regularly for about 4 years. On the upside, taking the past few years to get my financial ducks in a row and establish an emergency fund means I can comfortably opt for a higher deductible, which will lower my monthly car insurance payments.
Now if I could only do something to lower gas prices..

That time I almost bought a car

I have a tendency to do crazy things on a whim on occasion. Whenever life gets too boring I will dye my hair black or take off to a foreign country. Usually these rash decisions have a trigger: something has backed me into a corner and I find the only solution is to flip the playing field to give myself a new start-over point. Whether or not this is a healthy coping mechanism for stress is another post for another day — I’m not advocating the method, I’m just saying it’s what I do.

That’s how I nearly bought a car last Tuesday morning.

I needed to rent a vehicle to travel for work. I would be spending 3 days in a city a few hours away, and my only means of getting there and getting around would have to be a car.  I strolled into Budget car rental at 9am, only to be informed that they had no cars for me. I asked if there were any at another location, and as told the entire city was rented out.

I’m sorry, what?

I was directed to Hertz a few blocks away, so I marched there only to be told the same thing. I was baffled: why are rental vehicles of popular on a Tuesday in October? I felt like an idiot for not reserving a car in advance — why would I leave this until the last minute? I had never rented a car before, I didn’t know it was such trouble!

Standing in the lobby of Hertz while the guy at the desk expressed his astonishment that “it’s not usually like this!”, I frantically sought the nearest Mini Cooper dealership on my iPhone. What were the rates on car loans these days? Would I be able to negotiate 0% interest financing? Did I have enough hours before I had to leave to register and insure the vehicle — how long does all that take, anyway?

While I was hyperventilating at the prospect of taking on a car loan, someone called into Hertz and cancelled their rental, which is how I secured a decent Chevrolet Impala. I really wanted a mid-sized or small vehicle but alas, desperate beggars can’t be choosers! I plunked down a grotesque $309 with gratitude that it would be reimbursed by my employer the next week.

Almost-buying-a-car-on-a-whim repeated itself two more times before the week was through, however. First I became desperate for a vehicle to make a massive grocery run. I have been so well-fed by the University since starting my new job that my cupboards have run completely bare. I needed everything, and I needed a car to haul it all home. Thankfully my sister stepped in just as my desperation was piquing, and drove me to no less than 3 stores to acquire all the sale items and foodstuff my heart (and stomach) desired.

When Thanksgiving rolled around, I counted on a cousin to drive me to the festivities, but when I made my last-minute request, there was no room left for me in her car. I asked another cousin, then another, only to give up and frantically text message my aunt, the hostess, the night before to lament the possible retraction of my RSVP. She suggested four more cousins for me to harass (in case you’re wondering at this point, I have nearly two-dozen flesh & blood first cousins so I was barely half way through the list). Eventually I secured a ride, albeit the day of, which caused considerable undue stress and anguish to my psyche.

Why do these things happen to me?

I am not ready or willing to buy a car, but in the first 9 days of October, I required a vehicle for 6 of them. It was miserable, and I was miserable. I will procrastinate a vehicle purchase for as long as I can, but my resolve is waning. If only I didn’t have to pay those pesky student loans, I’d be cruising in my luxury Mini as we speak!

The Lexus strikes again

Early in March I blogged about a Lexus SUV I’ve been eyeing on Kijiji since January.

It’s beautiful, and I am obsessed with it. I want this vehicle, I do. I want it so bad I justify it in my head by telling myself things like:

1) Now that you’ve ditched academia, you will make more money because every full-time job pays more than a graduate student stipend. Get a car, Bridge, you’ve earned it.

2) Now that you’re no longer employed at the university, you will be taking the bus for ~1hr each day FIVE DAYS PER WEEK instead of just 2 or 3 days. Think about how sketchy the bus is at 10pm. Bad right? That is your life, 5 days per week.

3) The person that used to be regularly available to drive me to the grocery store, the post office, or rescue me when I missed the bus is… well, totally evil, and therefore will not be called on when I’m a damsel in distress. Some princes are frogs, not the other way around.

Anyway, now the price has dropped another $1,500 and the car is now listed at $17,000. How do I say no? Well, I couldn’t.. but my sister could. When I texted her to ask if she could come with me to take a look at it, she said sure — then asked the price & the model, and promptly told me a BIG FAT NO when I gave the details. She talked me out of it in about 5 seconds flat, encouraging me to “just buy something cheaper” like the Mini Cooper I originally wanted and “save my money for something more important, like a house”.

Don’t judge our lame start-every-sentence-with-LOL.

Who is this person? Why are they talking me out of my antics? All my friends were like, “YEAHHH! BUY IT!”, but then my sibling comes in to rain on my parade — or keep me in line. Truth be told, I’m grateful fiscal responsibility is something my sister and I have in common. It’s certainly proved its worth here, otherwise I might be $10,000 in the hole right now. Thanks sis!

Now we wait for the price to drop again, so I can do this all over.

If I had to buy a car tomorrow

You guys know I really appreciate the financial rewards of taking public transit, but if for whatever reason I had to buy a car tomorrow, I have a plan.

I know it probably seems a bit excessive to entertain such a “what if”, but I really like calculations (like, really) and having a plan of action for every single possible scenario makes me feel super secure so a few months ago, I made a spreadsheet for buying a car.

I compared the cost of an auto loan, the expected monthly costs, and how much I could comfortably — and uncomfortably — afford. I’ve wanted a mini cooper for the past few years, and nice used minis usually run for $11,000 to $17,000 in local ads on Kijiji so that’s what I generally plan for. After this month’s snowfall however, I think it’s crazy not to own an SUV, but that’s beside the point right now. My spreadsheet lets me know what I could afford if I used an entire loan (a line of credit I already have), borrowed ~2/3’s of it (“stretch”), borrowed only 1/3 of it (“affordable”), or didn’t borrow at all. Here’s what it presently looks like:


A few months ago, I only had $300 saved and couldn’t get anything without maxing out my LOC. Now the red box is around “stretch” because that’s what I’d need to get used Mini from Kijiji. The savings of $3000 is the amount I’d be willing to borrow from my car/house fund for this purchase.

So car ownership right now would not be great, but it’s nice to know I wouldn’t be maxed out. In fact, saving just $3000 has already saved me hundreds of dollars in potential interest:

6.75% is the current interest rate on my LOC, but because there’s no balance and I have good credit, I’m hoping I’d be able to negotiate it down so I included a lower number for comparison.

Now, I would say most people don’t take all the costs of car ownership into account when they buy a vehicle. Generally they zero in on the monthly payment, and ignore the rest. At best they’ll consider the cost of gas and insurance, but I have yet to meet anyone that makes estimates for parking and regular maintenance or emergencies. When my friends’ cars get damaged or ticketed and they’re stuck with huge bills, they panic and work extra hours or drain their savings to cover the it. My expected costs of car ownership are these:

Parking at my apartment building is $85/mo for residents, and I’d expect more than one paid parking excursion at the UofA for a cost of ~$15/mo. Gas is a low-ball estimate at 88.9 cents/L because like I said, this original spreadsheet was made a few months ago before gas went up. Not sure about the insurance estimate at all. All in all, not perfect guess but at least there’s ball-park numbers for me to consider.

$615/mo is a big sum and would be uncomfortable for my budget to absorb, but I could manage it. I think it’s interesting that even with no payments and a low estimate for gas, it would still cost me $315/mo to own a car. Ouch!

In short, I could buy a car tomorrow and it would kind of suck but it would still be manageable, and that’s reassuring. Hopefully I can get into that “affordable” column by graduation just in case a new job forces me to give up the train and the bus!

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!