Do You Really Need a Car?

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These days everyone has a car. Cars have become a key symbol of the rise in comfort and standard of living that characterises the 21st Century. Owning a car is one of those things – like buying a house – that people just do. Everyone thinks they should have a car.

And, of course, depending on where you live, particularly if you live in a remote area, a car may be a necessary means of transportation. However, for people who live in the city, and that’s most of us, owning a car is more of an issue of convenience or status rather than a necessity.

In urban areas, public transport tends to be affordable, convenient, and reliable, and thus a viable alternative to car ownership. If you live close enough to your work, walking and biking may be other viable and lower cost options.

However, if for some reason you do really need to use a car, you should first consider options like car sharing, leasing or renting. Remember that convenience always comes at a cost. And in the case of a car, it can be a money pit!

Why Do You Need a Car?

We have always lived in big cities and have personally never felt the need to own a car. We always chose our accommodations with the public transport system in mind, so that we would have an easy commute to work.

Similarly, we favour neighbourhoods with a large choice of amenities in walking distance. Overall, we plan for a lifestyle where we don’t need a car on a daily basis. During the week, we take the train or the bus to go to work. In fact, even if we had a car, we would not drive to work because parking in the city centre is too difficult and expensive.

We have all the major grocery stores within 20 minute walking distance from us (closer if we were to take a train or bus!). Instead of a car, we use a shopping trolley to transport our groceries home.

Even on weekends, we rarely miss having a car. Sydney transport is pretty great – Every Sunday they sell a “Family Funday” ticket that allows families with children unlimited use of any form of public transport (bus, train, ferry). The best part is that the ticket only costs $2.50 per adult.

The result is that many people with children who do have cars choose not to use them on Sundays because there is a cheaper alternative that removes the hassle of driving and parking. In fact, most people who have a car acknowledge that owning a car is a bad financial decision but are willing to make that choice in favour of convenience. But there are other ways to gain that convenience!

For instance, there are options such as car sharing, car leasing or car rental that you might consider. Each of these options is financially attractive for a different reason. Car sharing (e.g. GoGet, ZipCar) are best used for short inner-city trips, for instance an afternoon of heavy groceries shopping.

Car rentals would best suit weekend trips or holidays. Finally, car leasing is a longer-term option to temporary car ownership. Another option to consider is the use of taxis as a car replacement. Depending on the use you have for a car, you may find that those alternatives are actually cheaper than buying your own car. For instance, it’s cheaper to take a taxi home with your groceries than pay for your own car – And just as convenient!

Another option is walking. We try to do that whenever we can. It’s a healthy choice, environmentally friendly and best of all, free!

Practical Choice or Status Object?

There may be situations where you absolutely need to own a car because of your line of work (e.g. delivery driver or salesman) or because you have no other available transport options (e.g. living remotely). If that is the case, you can still be financially smart about your purchase.

There are a lot of options available to you when you are buying a car, ranging from low-cost no frills vehicles to luxurious lifestyle choices. As we all know, branding and status are very well-developed in the automobile industry. What you have to remember is that in developed nations all cars go through a thorough safety accreditation process (e.g. crash tests). It means that even cheap cars are safe cars.

So if you want to spend more money, you need to think about what you are spending that money on. Having shiny new leather seats or the sports version of a car might be nice, but you have to think about whether it is worth it. Does it help the product better achieve its purpose? If the purpose is to drive to and from work, then the answer is probably not!

It’s thus very important for you to think about why you are buying a car. Do you need a practical means of transport or do you favour aesthetics and brand? Most major automobile manufacturers have a regular brand and a more prestigious brand that comes with a price premium.

Ultimately, the core engine and much of the base frame are the same, i.e. built by the same manufacturer using the same parts. The differences lie in design and finishing. Some of the most popular car makers that take this luxury approach are Volkswagen with Audi, Toyota with Lexus or Honda with Acura. So, ask yourself – Are you willing to pay extra money for almost the same thing?

The other fun fact is that a lot of marketing emphasis is put on how powerful an engine is. Higher end models tend to have more horsepower! This is great if you need to accelerate quickly (how often do you try to get away from the police?) or if you like going more than 200 km/h (good luck finding a road that’ll let you – not to mention that the tires often aren’t made to keep up with that kind of speed).

So, yes, great if you live in Germany where they have motorways without speed limits, not so relevant if you live anywhere else. That means it doesn’t make a lot of sense for you to spend money paying for a speed that you can’t actually go to. Don’t fall for a marketing ploy, the maximum speed limit in Australia is still 130km/h … And even Chery cars can go that fast!

How Much Does it Cost to Own a Car?

You will probably have heard this before, but cars are bad investments – Especially new cars. If you buy a brand new car, it loses 10-15% of its retail value as soon as you drive it off the lot. And it will then continue depreciating at a steady 10-15% for the first few years.

It means that the higher the price you paid for the car, the more money you will lose in absolute dollar value. Unlike a house where you could potentially make a profit when re-selling it, a car will always be a financial loss.

If you decide to go with a second-hand car, you can avoid the first few depreciation hits, which are the heaviest. However, you will still be facing recurring costs such as registration, insurance, maintenance, and petrol. It’s still going to be a money pit!

GoGet publishes a good estimate on the cost of car ownership which I am repeating here. It is a rough estimate of annual costs.

Item
Amount
Initial Purchase (Toyota Yaris 5 doors automatic hatch)$20,000
Depreciation$2,475
Finance Charges/Interests$804
Insurance/Registration$808
Petrol/Servicing/Tyres$1,257

They find that for an entry-level model, the monthly cost of owning a car would amount to around $645. A higher-end model would command a larger initial price and depreciation, and higher costs for insurance, maintenance, registration, etc…

Keeping this in mind, the costs of the other alternatives we previously mentioned should be compared against this number. If you’re looking to buy a car, first ask yourself: Would it cost you more than $645 a month to:

  • Walk or run
  • Take the train or bus
  • Buy a bike and ride
  • Buy a motorcycle and ride
  • Pay a taxi when you need it
  • Rent a car when you need it

If you can cut out your car expenses, you can save a lot of money. Assuming you could deposit an extra $600 a month in a savings account that pays 5% per year, this would amount to $40,804 after 5 years. Enough to buy two cars!

5.00 avg. rating (98% score) - 3 votes

Monkey Master

My wife and I are currently living in Sydney, Australia. We plan on becoming financially self-sufficient in 2015 so we can retire at 35. We are regular working people, trying to be smart about saving money and generating passive income. I want to share with you how we reached that decision and how we are planning towards financial independence. Continue Reading.
Contact: monkeymaster@monkeyism.com

3 thoughts on “Do You Really Need a Car?

  • 30 April, 2014 at 11:29 pm
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    Just discovered your blog when I asked myself the question recently: do I really need a car? And have been reading through your other posts which are just as good. I don’t think I need a car but am struggling with this odd emotional attachment, probably because I’ve always owned one. I just paid over $2,000 to get it registered and insured recently and on a mere pittance of income. I’m thinking rather than go cold turkey on the car I might leave it garaged to prove to myself that it’s a waste of money and bad for the environment and I should stop being so lazy. I do have a push bike after all. Because let’s face it, this is just laziness on my part, driven as you say from advertising and keeping up with the Joneses. I’m fortunate to have a home in the burbs with room for veggies and fruit trees, extending to my otherwise wasted front yard but am keen to put to action your tips for saving more on the groceries. Great blog and thank you. I might try a diary of day to day ‘doing with outs’ to see if I can gradually change my mind set.

    Reply
    • 4 May, 2014 at 6:32 am
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      Hi, thanks a lot for your support and for sharing 🙂 On our side, we just had a second child a month ago (it’s been pretty busy so I haven’t published in a while…) and we still don’t plan to buy a car. People already told us we couldn’t live without a car after the first child. Now the second one is here and we still don’t feel the need to own one. We have a double pram instead! We’ve sold our last car 8 years ago and have not looked back since. I’m sure you’ll find alternatives that work for you once you remove the easy solution from the picture. I’m very envious of your veggie patch and mini-orchard, so I hope you take full advantage of them 🙂

      Reply
  • 12 March, 2017 at 2:33 pm
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    Hi Monkey Master,
    Thank you for writing this and changing my mind not to buy a car. I was really tempted & owning a car was more of a ‘status object’ to me. The only points of hesitations were ‘whether I will be able to use the car enough to justify its purchase’ & ‘will it be costly to maintain’
    I decided to listen to what others have to say and I stumbled upon your blog through Google. The points you mentioned are spot on, it wasn’t necessary to buy a car considering the public transportation options I got. After reading your post you just convinced me not to get one & it possibly saved lot of money.
    I hope you are doing good & your retirement plans went well as planned.
    I am from India!

    Reply

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