Why getting rid of the car is awesome for FIRE

When we first talked about getting rid of the car, my partner was sceptical. We’d only just downsized from two cars to one! How were we ever going to cope?!

[Photo by Yoav Aziz on Unsplash.]

Easily, it turned out!

This post explains why automobiles are toxic for your personal finances and why we have no regrets about getting rid of the car to work towards FIRE.

Cars, culture and conventionality

Generally speaking, when you point out to someone that they a) live in a town, b) public transport isn’t that bad and c) Uber has made taxis cheap, they get defensive. Instantly. The first thing most people say is “I need this to get to work“, or “I need this to get the food in“. It’s usually followed with “it’s cheaper than getting the bus every day… it’s cheaper than a taxi…“.

Except that it isn’t cheaper. I’ll show in the next section exactly how much more expensive it is for anyone who doesn’t live in an isolated village somewhere. However, this is a predictable phenomenon. I’d explain it using science and stuff, but this comic from The Oatmeal does it better.

Sadly, owning a car is basically a badge of honour in modern British society. How do you know if someone is doing well? Look at what’s on their driveway!

If you’re interested in financial independence, you’re already coming around to the idea that cultural norms aren’t necessary. You’re aware that you don’t have to work in an endless cycle of drudgery until HM Government finally allows you to retire, your best years spent making other people wealthy. I’m assuming that, based on the evidence, you’d be at least a little bit open to breaking the cycle of car ownership if it meant that you had freedom.

Let’s see how bad cars can be.

Why car ownership is toxic for your finances

If you look back to my post on budgeting, you’ll see that the average Brit spends £80.20 a week on transport, roughly 13.7% of their take home pay. It’s the single biggest expense apart from mortgage payments, even bigger than they amount spent on culture/ leisure/ recreation. Conceivably, if you need the car to work, you’re working harder to buy and run a car to get you to work than you are actually enjoying the money from your work.

If the “average” Brit could ditch the car and find a job closer to home, they could take a 13.7% pay cut and still be just as well off.

There’s no such thing as “average” I guess! However, I’ll run the numbers all the same, based on a reasonably price hatchback.

Buying the car in the first place

Let’s make the assumption that you decide to buy a reasonably-priced car from an approved dealership that’s around 4 years old. This 2017 Ford Focus, for example, is listed at £10,500 on the Autotrader website and displayed as being at a “good price”.

So, you’ll spend £10,500 on the purchase, which comes at the opportunity cost of not earning any interest on that £10,500.

Tax was shown as £150 by Autotrader. I ran a quote through comparethemarket.com and was offered insurance for £503.41 without any frills like breakdown cover on a social, domestic, pleasure and commuting insurance. That’s with a driveway (which I don’t have)!

So, for a grand total of £11,153.41 you can get a 2017 car on your driveway. That’s your initial cost.

Wait, don’t I get some of the money back when I’m getting rid of the car?

Great Scott, you’re right!

Let’s be generous and assume that you’re keeping this car for six years. I’ve used a website to deduce from the cost of a 2011 (61 plate) Ford Focus of roughly the same spec that you would get £2,300-£3,000 back for the car at the end.

The difference between what you buy a depreciating item (like a car!) for and what you sell it for is called depreciation. We can see here that over the 6 years you’re getting at best £7,000 of depreciation. That’s right: even without running the car, you’re paying around £1,166 per year or £97 a month.

And then you have to run the car…

Let’s say, generously, that you only drive 8,000 miles a year, which is tiny. At the advertised 51.4mpg combined (Really? That good after 6 years?) you’re buying 155.64 gallons of fuel each year, for six years, so 933.84 gallons. This website thinks we’re paying £4.637 per gallon at the time of writing. Being generous and assuming no fuel increases, that’s a few pennies over £4,330 in fuel.

Let’s assume insurance stays flat. It has in fact increased in recent years, but let’s assume that you’re a good driver and this counteracts the insurance market increases. That’s another £2,500 for the 5 years after year 1.

Tax at £150 for 5 more years comes to £750.

You’ll need an MOT every year, so that’s 5 more before you sell it. That’s £35 each year, so £175. We’ll be kind and assume that in 5 years al you do is change all four tyres only twice, because the sums are getting ridiculous already. At £200 for a budget set, that’s another £400.

I’ve not included servicing. Let’s assume a basic service annually, which the Money Advice Service estimates at £125 a year. That’s £575, assuming you don’t service in the first year.

That makes the running costs alone £8,730. We’re on a total of £15,730 for our six years, £2,621.67 per year or £218.47 a month – assuming that you don’t need any mechanical work on it and drive it like a sweet old lady pootling off to afternoon tea on a Sunday.

But wait, there’s more!

I’m going to assume that at the end of 6 years you’re going to want to buy another new car. Generously, that’s going to be another 4-year-old car, which means you’ve got to save up the difference from the (optimistic) £3,000 you have from the sale and the cost of a new one, as well as everything else.

Your 2017 car cost £10,500. However, let’s assume a conservative rate of inflation of 2%. After 6 years, the same spec car of the same age might well cost you £11,824.70, based on 2% annual inflation.

You’re going to need to have saved another £8,824 in those 6 years. That’s £1,471 per year, or £122.58 a month, on top of your operating costs just to maintain the same standard of vehicle.

That brings us to a total of £341.05 a month to own a Ford Focus and drive responsibly. Surely that could be put to better use?

The Alternatives to cars

There are some situations where getting rid of the car isn’t an option. I have friends who live in rural Oxfordshire where there just isn’t any public transport. However, if you’re fortunate enough to live in a somewhat urban area, you’ve got options.

If bus services are good, you can get some good prices. I can get unlimited bus travel across Hampshire for £85 a month, or £170 for two of us. That’s assuming I even need to get the bus every day…

On weekends, I can get an Uber to the city centre and back for £7 each way. Even if we went to the city centre every Saturday and Sunday, that’s only £112 a month, and I can have a beer in town, too!

That’s £282 a month, being ridiculously excessive, and I still don’t have to pay maintenance or stay on top of scheduling.

Then there’s our actual go-to, which is a bicycle. I paid £350 for mine two years ago, and I can get around my city faster by bicycle than by car. Obviously, if it’s raining, I can use the bus. The point is, it’s dirt cheap, and I could buy a whole new bike every year instead of keeping it maintained if I wanted to, and still be better off.

What about getting food in? Won’t getting rid of the car mean I’ll be forced to eat whatever is in the corner shop?

Nonsense!

Now, I’m an extremist. I genuinely take a 40 litre backpack to Lidl and carry a week’s worth of groceries home, because I live close to a high street and I’m a fit individual. You don’t have to do what I do!

Thankfully, Tesco, Ocado and a whole host of smaller suppliers deliver. Even if you had to pay them £5 per delivery, that £20 per month frivolity is dwarfed by the savings you can make by not having a car.

My point here is that the modern world has made it easy to go without a car.

I get what you’re saying, but what if I need a car for one thing…

My partner and I discussed this when we were taking the leap and getting rid of the car.

Allow me to introduce you to Enterprise Car Club. This isn’t an ad, I’ve never used their service, but the concept is that you can do a short-term hire of a vehicle at an affordable rate. They’re not the only ones, either.

We have a dog, so we had to make sure that there was a way to transport him. We learned that Sixt and Avis both allow pets in the boot of a hire car, for those special occasions. Sorted.

Conclusion: getting rid of the car is awesome for FIRE

If you want to win your financial independence – which I do – you need to break the mould. You need to to adjust your budget so that you can hit a decent savings rate. You’re going to need to take whatever you can save and invest it.

If you can get rid of the car, you absolutely should. I’ve shown above how you could be significantly better off without it, upping the amount you can put into assets that make you passive income or growth. If the median weekly pay is £586 (£30,472 a year), this could mean that the first 7 weeks of work you give each year goes towards just paying for the car that mostly takes you to work and/or sits on a driveway. By getting rid of it, you could be getting up to 7 weeks extra per year towards financial independence.

Over a potential 37 year career lifespan (for a graduate) before state pension age at 68, that’s a shade under 5 years of work spent just to maintain cars to get to work. That’s right: if you could go your whole career without a car, doing nothing else to improve your situation apart from putting that cash into a pension pot, you could retire 5 years earlier.

That’s why getting rid of the car is awesome for FIRE.