Owning a Car Isn't Always the Best Option

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Alright, this week’s article is a little different. Normally, we dive into the deep unknown of the human psyche and how it relates to living a better life. Today, however, I want to challenge the status quo. I want to turn society up on its head.

I’m talking, of course, of the benefits and drawbacks of owning a car and not owning a car.

It may seem like it’s coming out of left field, but my interest in this comes from a desire to question “the traditional path." Why does everyone own a car, especially now that there's a multitude of available ride services and similar options? Why do people tell me that a car lease is a bad investment, yet most of the people I know lease their cars?

Questions like these ensure you’re living life the way you actually want. It’s important to question seemingly known truths to test their validity. Maybe something that's right for the majority isn't right for you.

When I started researching home ownership, for example, my first question wasn’t “how much can I get approved for?” but was instead “is it even smart to own a home?”

Now, you might be rolling your eyes because you believe that home ownership is a no-brainer. And if you are, you’re right; well, to an extent. Compared to leasing, owning a home is definitely better. Owning a home may or may not be better than being homeless, depending on your lifestyle.

But I can say it all with confidence because I ran all the numbers myself. Home ownership is right for my lifestyle. But I didn’t take on $500k worth of debt just because someone told me it was a good idea.

The same ideology applies here. Is car ownership the smartest investment to make when it comes to your daily transportation? Well, let’s find out.

Cost of Owning a Car

Ok, buying a car and taking on a car loan is a typical thing to do. People finance cars without a question on their lips. But what’s the annual cost of car ownership? Few people know.

Let’s say, for example, that you purchase a car for $10,000 (including sales tax) with a car loan at 3 percent interest, for a total of 12,000 (don’t check my math on the interest, but you get the idea). Monthly payments are roughly $200 per month, and you’ll pay off the loan in 5 years. This means that you’ll pay a total of $12,000 over the life of the loan.

But that’s not the cost of your car. Since cars are assets - albeit ones that quickly depreciate - you’ll be able to sell your car after five years for $5,000, which means that the cost of owning your car is: $12,000 - $5,000 = $7,000.

Divide that by five years and you get $1,400 in annual costs. But it doesn’t stop there.

My monthly insurance is $80 a month. That’s a little on the high side (I've got great coverage, what can I say), but for the sake of this argument, let’s assume the average insurance is $80 per month. The annual cost of insuring your car is therefore $960.

And the annual costs continue.

I recently got my oil changed and was hit with an extra $150 for power steering and transmission fluid. Luckily I only have to change these roughly every 50,000 miles, but I’ll still change your oil about two times a year, on average. So, assuming that an oil change is $25, and assuming you’ll have to pay that extra $150 every 5 years, your annual cost for servicing your car is: ($25 x 2) + ($150 / 5) = $80.

And the costs still continue. Registration is $100 per year and you probably spend around $150 per month on gas, depending on your location. This means that your gas and registration cost $1,900 per year.

So, in total, the annual cost of owning a car is equal to: $1,400 + $960 + $80 + $1,900 = $4,340 per year.

Benefits and Drawbacks of Owning a Car

Now, beyond the five-year car loan, your annual price drops to $2,940. You pay off your loan and you never have to make another car payment again!

Well, until you buy another car of course. But at the same time, using the numbers above, if you keep your car past the five-year loan, you’ve effectively spent $12,000 and haven’t sold the car to recoup the $5,000.

This means that you have a “pull on liquidity,” which stops you from using the $12,000 elsewhere. What could you do with an extra $200 per month over the next five years?

Further, owning a car means you might be on the hook for much larger repairs and maintenance. Good thing I have that expensive coverage!

On the flip side, there are definitely benefits of owning a car. The freedom to go where you want, when you want can’t be overstated. You can take it camping, to a friend’s house, to Coachella. And you can even sleep in your car in a pinch (being a digital nomad, I’ve done that myself). Car ownership is worth a little bit of freedom. How much is that bit of freedom worth to you?

Cost of Leasing a Car

Leasing a car is similar to car ownership, except for the fact that you don’t actually own the car. Instead, you rent it from a dealership or car company, much like leasing an apartment.

Typical leases go for roughly $350 per month with zero down. This means that when you lease a car, you can drive it off the lot and expect to pay $350 in perpetuity, or until you switch the lease after the two- to three-year agreement.

However, you're also responsible for your insurance and car maintenance, meaning that many of the same costs associated with owning a car apply here, too.

If your monthly insurance is $80 per month, you still use around $150 of gas per month, you change your oil twice a year at $25 per oil change (you won’t need to worry about transmission fluid, etc. because it’s a new car), and you register your each year for $100, the annual cost of leasing a car is as follows:

($350 x 12 months) + ($80 x 12) + ($25 x 2) + ($150 x 12) + ($100) = $7,110 per year.

If you didn’t follow along check out the calculations on owning a car, above. Both are essentially the same inputs, except a lease is typically more expensive than a car loan yet it will probably cost less in repairs and maintenance.

Benefits of Leasing a Car

Yikes, $7,110 is a lot higher than owning a car (assuming you sell the car at the end of the loan). However, there are some pretty sweet benefits when it comes to leasing a car. Which is basically the fact that you can drive a brand new car and flaunt money you may not actually have.

Car leases only allow for the leasing of new cars. This means that at worst, you’ll be driving a car that’s somewhere between two and three years old. This is in comparison to a $10,000 car that’s typically five to six years old at the beginning of the loan.

…That’s pretty much it, actually. You get to drive a dope car - Range Rover, anyone. The benefit is that you “make your money on the front-end” versus a car loan where you make your money on the back-end. Reason being is that you save money when you own a car outright (i.e. if you purchase it with cash or pay off your five-year car loan), but with a lease, you drive a car that’s probably out of your price range to own otherwise.

Cost of Living a “Car-less” Life

Now we get to the real reason I wrote this article. With all the options for ride-sharing and public transportation, it’s possible to live a very mobile life without owning or leasing a car. Trust me, I did it for about four years. I sold my car in 2013 after moving to San Francisco and finally bought one in late 2016 when I moved to Los Angeles (damn you, Southern California city planners!).

If you don’t own a car, you’ll have to get innovative with your approach to mobility. Zip cars, Lyft, Uber, ride-shares, public transportation, and more are all good alternatives.

However, transportation options are specific to cities and regions, and it’s hard to standardize the monthly expenses for public transportation. Instead, I’m going to assume that you take a Lyft and / or Uber to and from work every day. If you work from home or take public transit to work, either omit this cost or adjust it for your specific needs.

Ok, so, assuming you take two Ubers a day, five days a week, at $10 a ride, your monthly cost of commuting is equal to: ($20 x 5 x 4) = $400.

Multiply that by 12 and you have an annual commuting cost of $4,800. If you spend an additional $100 on ride shares to get around town for general purposes, your annual cost is: ($4,800) + ($100 x 12) = $6,000 per year. Hm. Not cheaper than owning a car but definitely cheaper than leasing one.

Now, if you live in San Francisco, New York, Chicago, or someplace similar, it’s probably safe to assume you use public transit a lot. From my time living in San Francisco, an unlimited muni pass cost me $80 per month. Public transportation got me to and from work as well as around town on the weekends.

So, you can reduce your monthly commuting cost from $400 to $80, which lowers your annual commuting cost from $4,800 to $960 (let’s continue to assume you spend $100 per month on ride shares to keep things easy - can’t take a date on the bus, can you?). That’s a ton of savings! Recalculating the annual cost shows you that you’ll spend $2,160 per year. That’s by far the cheapest option of the three.

Of course, if you own a car AND live in a city with bomb public transit, your annual gas expense might be less and yada yada. I get it. You can’t write a blog post and cover the infinite amount of unique scenarios. Just understand that there are more options to just owning a car, ok?

Benefits and Drawbacks of being "Car-less”

The benefits of bucking the societal trend and living life sans-car is pretty apparent. If you do it right, it’ll cost you the least amount per year.

Not to mention you’ll save yourself on headaches, too. Imagine never having to stress or worry about engine trouble or other hidden car costs. Amazing!

However, the drawbacks are also pretty apparent. For example, you’ll never be able to take a spontaneous road trip to see friends and family. You won’t be able to hop in your car and drive somewhere at a moment’s notice. But, if you expect to road trip sparingly, a service like Zip Car could be a great alternative for those moments.

What’s important to note here is that living without a car can be done fairly easily. Your friends might think you’re weird, but when you spend half as much annually on transportation as they do, who do you think has the last laugh?


The bottom line is that all three options may or may not suit you. For some, it makes sense to own, others like the new car smell of a lease, while a select few have done away with cars altogether.

The point, however, is to show you that there are many options. Don’t assume you need a car just because society tells you it's normal. Don’t assume you need to do anything just because it’s "normal."

Instead, run a cost / benefit analysis on your life and make a decision as to what’s best for your wallet as well as your happiness.

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