Is Car Ownership Worth It?

When I think of the single greatest action anyone could take right now to accelerate their journey towards personal and financial freedom, I think of how I learned to bike again. This single decision has the power to immediately increase the rate at which we build wealth.

This one decision has led to an increase in my assets of nearly $50,000 in the past 4 years of my working career.

So, you might be asking yourself,

Is Car Ownership Worth It?

If you’re thinking it is impossible to take this advice, because car ownership is a MUST in your life, then skip ahead, but first, I’ll clarify how I arrived at such a large number.

The average cost of owning a car today is approximately $8,698 per year.

An argument could be made that a frugal person can buy a beat up, used vehicle to save on money, but I’ll counter that point with an offset cost associated with keeping a car in an expensive city. My hometown of Chicago means parking can run anywhere from $1,500 to $2,500 a year.

Instead of spending $8,698 on a vehicle each year, I’ve invested that same cash flow into my 401(k), which is pre-tax. Assuming a tax rate of 30%, that means I would have needed to earn $49,703 to have paid $8,698 each year.

Of course, there are tax implications on the tail end of my, “savings,” If you’re looking for ways on how to access retirement funds early, without penalty and in a tax efficient manner, then I recommend checking Brandon’s Mad FIentist post. Definitely a good read for anyone interested in early retirement or pursuing less income later in life after having reached financial independence.

As for me, after factoring in the cost of biking or taking public transit instead of driving, I can comfortably  say I’ve come out ahead by more than $45,000.

Public transit in Chicago used to cost $100 per month for both my girlfriend and I before we moved within walking distance of work. At $1200 per year (since commuter costs have been a pre-tax benefit at my jobs), that means I’ve spent about $3,000. I’ll venture to say owning a bike would be far less expensive if it wasn’t for the fact I use my bike to compete in triathlons as well.

Is car ownership a MUST in your life?

Take a moment to consider what we NEED a car for. Don’t think of this as  a question about if we need a luxury car or if we would be just as happy with a Honda Civic. This is an overall question on car ownership in general.

Is it possible to move closer to work so we can walk or bike instead? Is it possible to hop on public transport?

Are there short trips from our home where we can use a bike instead of driving the 1 or 2 miles?

Is it possible to consolidate from two cars to one in a household?

These have all been questions my girlfriend and I have asked over our time in Chicago, and we continously value building wealth higher than the benefits of car ownership.

Of course we have been massively inconvenienced at times by having to rent a car. It is a pain to have to wake up an extra twenty minutes to walk a mile to pick up a car, but that type of inconvenience is worth it to us.

From my perspective, I can tell you eliminating car ownership would NEVER have happened in my household growing up. Each of my parents demanded their independence and viewed their vehicle as an extension of their freedom.

I want to add that they worked at the same building and often car pooled together to and from work.

I’ve taken a different approach than my parents, because I saw their financial habits mimicked many of those struggling to fund their own retirement. As I’ve mentioned before, part of my FI calculations include a portion of my future income being utilized to help support my parents in retirement because they will not be financially prepared for it. .

Many of us get sucked into buying what we think we can “afford”. If we maintain that approach throughout our working career, we’ll always spend the maximum we can, without leaving room to let our money work for us.

As Bobby, from the Millennial Money Man put it on Twitter:

M$M Car Ownership
That is sagely advice if we’re serious about pursuing financial freedom.

Final Note

The last thing I’ll add is that I believe car ownership is a dying business model. Following the boldness from a recent guest post’s stock market prediction, I’ll put myself out there and say the future business model will be car fleets being owned and operated as a public utility.

Currently, the average car owner utilizes their vehicle 5-10% of the day. The remaining portion of the day, the car sits and depreciates. This creates a large economic incentive for companies to put those cars to work.

Autonomous driving technology is constantly improving as more than 3 million autonomous miles are logged every day at Tesla alone. It wouldn’t surprise me to see a future where trusting a 16 year-old to drive a multi-ton vehicle on their own is considered reckless parenting.

The cost of insurance to cover an individual driving their own vehicle will also skyrocket as the safety of autonomous vehicles far surpasses human capabilities.

Think of it this way; people still ride horses, but it is an expensive hobby as opposed to an effective way to travel.

With the rate technology improves today, I wouldn’t trust those resale values on cars in ten years.

Do you enjoy the financial and personal benefits of biking to work? Is car ownership worth it to you or is it something you wish you didn’t need to put up with? Is there a factor or two that needs to change in your life before you think biking or walking makes sense?

Master Distiller

34 comments… add one
  • Brad, helping Maximize Your Money Aug 22, 2016, 5:26 am

    Great option, especially if you live in a city with good mass-transit – or a town small enough to bike. It’s a challenge here in Charleston though because the roads are too crowded and we have very few bike lanes.

    BTW, biking is also great exercise! Nice to save money while enhancing your health! 🙂

    • Distilled Dollar Aug 22, 2016, 6:22 am

      Yep! Most of the decision will come down to simple geography. A town like Chicago works, but a larger, more spread out town, such as Los Angeles, would most likely require a car.

      As I mention at the end and you highlight as well, cycling is also a great middle option. Some people would be surprised how cycling might even get you to work faster than driving a car. Either way, you’re spending much less while working on your own health. A great, viable option for most people.

  • Dividends Down Under Aug 22, 2016, 5:50 am

    Hey Matt,

    I fully and completely agree with your way of thinking. We have one car between the 2 of us – I use public transport to commute – it saves us many thousands of dollars a year.

    I’m extremely intrigued to see how the autonomous cars work out, I think a lot of mid to higher income earners will still want ‘their’ own car. But for the masses, and combine that with the eco-friendliness of electric cars – the environment will benefit a lot.

    On the other hand, taxi drivers (and Uber/Lyft Drivers), courier/post delivery drivers, food home delivery, truckers etc. won’t have a fun time.

    I’ll also be interested to see what happens with car insurance – both for autonomous cars and non-auto cars.


    • Distilled Dollar Aug 23, 2016, 1:14 pm

      Yep – we live in interesting times. I think many of those who will want a car will be priced out by the increased insurance costs to be able to drive on their own. Time will tell!

  • Martin - Get FIRE'd asap Aug 22, 2016, 6:03 am

    Hey there Matt. Good question. You make some good points about car ownership. Coming from a slightly older generation where everyone owned a car I do find the concept of car sharing a little odd. I’m not sure I’d be happy sharing my car as it’s my bit of personal space. This may seem strange but I guess when you’ve viewed cars in this way all your life, it’s hard to change.

    Also, when you have lived in places where public transport outside the main city routes is pretty poor, it makes having your own reliable transport essential.

    I’m interested to see how transportation evolves in terms of car sharing, robotic cars and concepts we haven’t even thought of yet. At the end of the day though, people want to get where they’re going quickly and conveniently. If you’re lucky enough to live in a place where public transport fulfills 90% of that need, that’s great. If not, the car still has a place. Interesting post.

    • Distilled Dollar Aug 23, 2016, 1:19 pm

      I’m not sure it is a generational issue as I do have close friends who swear by their car. I think it comes down to mostly what type of job we have (how often we need to be on the road) and a bit of that sense of freedom a car can provide.

      I’ve rented cars for a day through the various car services in Chicago, but my same friends would not consider that an option.

  • Ms. Montana Aug 22, 2016, 8:08 am

    Montana is a tough place to go without a car. Although our community is planning bike paths in the next decade, which would make it much easier. Right now I think our biggest challenge is the 5 kids! There will be at least a mini van in our future for many years. =)

    • Distilled Dollar Aug 23, 2016, 1:17 pm

      Yikes! Montana sounds tricky and very open, so defienely agree there. A mini van seems like a must in your situation!

      If you start using the mini van for solo, one mile trips down the road, then there might be an opportunity to put more away for your family. 🙂

  • earlyretirementnow Aug 22, 2016, 9:04 am

    If you live in a city with expensive parking, good public transportation and good options for car sharing (Zipcar, etc.) you’re probably better off just not having a car. Saving the difference (thousands of dollars a year) can add up to a lot of money over the years. But isn’t it amazing that even Mr. Money Mustache still maintains two cars? If I remember correctly.

    • Distilled Dollar Aug 23, 2016, 1:20 pm

      Yep – 100% agree with all that.

      I know MMM has at least one car, but I wonder how often he uses that car vs the “average” family…

    • Jorgmagnifico Aug 27, 2016, 9:36 am

      As far as I know mmm only has one vehicle, a mini van that he uses for out of town trips or carying constitution items too large for his bike trailer.

      • Distilled Dollar Aug 27, 2016, 9:47 am

        Love his bike trailer and any and all posts related to his bikes. He was definitely the person who got me into enjoying walking/cycling a lot more.

  • Stefan @Mllnnlbudget Aug 22, 2016, 9:10 am

    Love the perspective Matt and I share a similar view. Autonomous cars are going to happen sooner rather than later in the developed countries which will provide an interesting shift in that market. I do not own a car as I will be living in the city and quite frankly I see no need to own a car unless I live in the suburbs and have no means of public transport to work, it is just far too expensive for a depreciating asset. These savings will be going straight into retirement savings to put me on the fast track to early retirement.

    • Distilled Dollar Aug 23, 2016, 1:21 pm

      Yep! A car might make sense if you’re out at clients as well – but I’ve been lucky enough to have car rentals paid for by those same clients.

  • Laying Down the Law Debt Aug 22, 2016, 9:38 am

    It’s great if your job is in a place where there’s good public transportation and the places you want to go are easily walkable. The spouse and I went apartment hunting this weekend though, and in order to give up one of our two cars, we have to pay $700 more per month in rent. It actually makes more financial sense for us to get a cheaper $1,000 per month place and drive 15 to 25 minutes to work then to pay $1,700 or more per month and give up a car. West coast has issues.

    • Distilled Dollar Aug 23, 2016, 1:23 pm

      If I was in LA, I would have a car. I’m not as familiar with some of the other cities but they do seem to be more spread out.

      We actually have a slightly similar situation where we could technically save a few hundred a month if we opt for a much lower rate of rent and commuted via a car, but we’ve opted to put ourselves within walking distance. Plus, there are a lot of free museums and sights we enjoy seeing right outside our door.

  • Patrick Aug 22, 2016, 10:51 am

    Wish I lived in a city that could afford this lifestyle. My job doesn’t allow me to be without a car at all times as I have to run to multiple parts of the city hauling parts and doing maintenance on my equipment around town. We don’t have a company truck/car for this. I live in a very bike friendly city…but the thought of renting a car for 100 bucks for a day when I have to haul parts and pieces places(can’t haul them on a bike, and they cost more than my house) and spending half my daily income to do it…I stick to biking on days I know I won’t be in that situation.

    • Distilled Dollar Aug 23, 2016, 1:25 pm

      Yikes! If the car is mandatory as part of the job, how are you being compensated for using your car for your employer?

  • The Financial Panther Aug 22, 2016, 12:24 pm

    I think with how technology has advanced, car ownership is becoming less and less important. If you live in a decent sized city, you can almost always get around everywhere using mass transit, bikeshare, and car sharing.

    In the Twin Cities for example, I get around town using mass transit or bikeshare. If I absolutely need a car, I hop into a Car2Go.

    Bikeshare costs me 75 dollars per year and the park stations are everywhere. As a bonus, I get exercise, so probably saving money on healthcare costs.

    • Distilled Dollar Aug 23, 2016, 5:57 pm

      Nice! I’ve occasionally had to rent a car for a day, and it ended up costing as low as ~$40. Typically, its closer to that $75 range when I factor in gas and insurance.

      I’m curious to see how car ownership will go within the next 5 years. I do think it will be radically different in that short amount of time, but I know many won’t agree.

  • FinanceSuperhero Aug 22, 2016, 2:39 pm

    Matt, I love the bold prediction and think it’s spot on. I’m sure plenty can and may go wrong with Tesla’s push for a fully-autonomous vehicle, and of course, there are legal complications to be sorted out as well. If it all goes according to Musk’s design, I think we’ll all be calling upon an automated driver much like one can call an Uber today.

    I, too, value my independence and unfortunately must have vehicle access at all times since starting my real estate side hustle. But if I could cut my costs and walk/bike everywhere, I would be thrilled to do so.

    • Distilled Dollar Aug 23, 2016, 5:59 pm

      I’m confident autonomous cars will be extremely common within a decade. It is a whole other question if there will be a profit for companies such as Tesla. I’ve put my 5% play fund into Tesla, so I’m sold, but we shall see soon enough!

  • [email protected] Smarter Decisions Aug 22, 2016, 4:27 pm

    Great ideas here! I can walk to work right now and it is awesome! My husband and I are hoping to just use one car after this year too. At our vacation home we can walk or ride bikes to everything – or take the bus. I can’t wait to not have to pay for gas or so much for insurance. Having two kids driving now certainly adds to the bill too! Getting a car is a “right of passage” in our area because there is no mass transportation anywhere… An expensive proposition for kids and parents too!

    • Distilled Dollar Aug 23, 2016, 6:03 pm

      If a car becomes mandatory in our future, I hope to mimic what you two have done – where you can get by on one car. It sounds like you have a great set up as well!

  • Apathy Ends Aug 22, 2016, 4:34 pm

    We have cars but still take public transportation to and from work at 1/4 the cost of driving in. On of ours is on low mileage insurance and the other is close to being under the threshold.

    We will have 2 cars for the foreseeable future as occasionally both are used and I see that increasing after we have kids. But I totally agree with you Matt, if you can get by with 1 – do it!

    • Distilled Dollar Aug 23, 2016, 6:04 pm

      Nice! Most people would get the car and then automatically revert to no public transit or walking/cycling. I hope when we do get a car, we adopt your style where we minimize use, and hopefully we can even get by on one.

  • Jon @ Be Net Worthy Aug 23, 2016, 6:04 am

    I think it’s great that you guys have been able to get by without a car! Every couple of years I break out the local map and see if I can figure out a way to bike to the office. It kills two birds with one stone. You save money driving and you get your workout in for the day. But, alas, there is no safe way to get there without risking life and limb with the crazy Philly drivers we have around here. Plus in the suburbs it’s tough to get from point A to point B without a car. Not to mention shuttling the kids to/from soccer, tennis, taekwondo, etc…

    Enjoy your car-free time and glad to hear that you are socking away the money! In a few years if/when kids come into the picture you may have to break down and get one, but maybe not if the autonomous cars make it big!

    • Distilled Dollar Aug 23, 2016, 6:09 pm

      We’ll enjoy these days as long as we can. We get the added benefit of compound interest as well, so our “no car” fund should do us wonders in 20-30 years.

      I like your approach on cycling into work and I can imagine it might be similar for me in the future. We are highly fortunate today to be working and living with the same sq. mile, but this will not last.

  • FinanciaLibre Aug 23, 2016, 12:07 pm

    Nice analysis, and some excellent points here – many thanks for the great read!

    I agree that individually-owned cars will go the way of the dodo…eventually. But the more evolved of us (like you) will find ways to do without ahead of the curve.

    There’s lots to recommend biking/walking/clinging to the back of a Jeep on your skateboard beyond the financial and health implications. With one fewer (very complicated) thing to worry about sans car, life becomes much more awesome.

    Great post!

    • Distilled Dollar Aug 23, 2016, 6:12 pm

      I like the skateboard idea!

      I do enjoy having less clutter to deal with. Since we both walk to work, we also save time by not having to deal with parking or any insurance calls. I’ll keep being grateful as long as these no-car days last.

  • Colin @ rebelwithaplan Aug 23, 2016, 12:44 pm

    Even from a young age, I never grasped onto the idea of car ownership. I’ve always wanted to be in a place where I could be car-lite or car-free and utilize public transportation/ride-sharing, etc.

    Austin, TX (lived there for several years) is interesting in it’s approach to driving. The city is spread out, thus requiring a car, yet there are LOTS of bike lanes all over the city and the public buses are decent. Although Uber and Lyft were just shut out from the city due to regulation issues, haha.

    I’m in Thailand right now and enjoying being car-free!

    • Distilled Dollar Aug 23, 2016, 6:13 pm

      Nice – a comment from Thailand!

      That is an odd mix of bike friendly & car friendly. Here in Chicago, they’ve actually been reducing the lanes in the streets in favor of bike/bus lanes.

  • Adam @ Aug 30, 2016, 10:25 pm

    Hi Matt,

    Great article! I totally agree with you about the autonomous vehicle situation and the future of driving. Crossing my fingers that my 3-year-old will never actually “drive”. Looks like even without autonomous vehicles, ride-sharing is making living without a car much more affordable and convenient, at least in mid to large sized cities. I saw a report in Business Insider that Uber is testing a cheap flat rate to take on public transportation. Did you see that one? Bold prediction, but you’ll end up being right.


  • Mr. Grumby Nov 5, 2016, 5:04 pm

    Getting rid of our car caused a surprising amount of shock and anxiety among our friends. Most wouldn’t even think of downsizing their cars, and certainly would never go car-free, despite the costs and barriers to financial freedom car ownership presents.

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