Thursday, December 3, 2009

The True Cost of Commuting

We are all looking for ways to save money in these tough economic times. Even better, how about earning extra cash amidst all the negative news?
One simple and guaranteed way is to put away the car (or better yet sell it) and begin walking and biking.

It is common knowledge that most households spend more than necessary on their vehicles. The American Automobile Association estimates that operating a typical SUV exceeds $8000 per year. Increase your commute distance and this can easily reach $10,000 - $12,000 based on the True Cost of Driving Calculator.


Now let’s say you buy a used but reliable car or sell an extra car and minimize your driving by utilizing transit, biking or walking you can easily cut your expenses in half. This results in an annual saving of $4000 - $8000 dollars.

This saving invested with a rate of return of 7% would yield $60,000 to $130,000 over ten years and $190,000 to $380,000 over twenty years. Do this for forty years and you would earn over a million dollars just by reducing your automobile use by half!!!!

This may seem far fetched, but combine this with rising fuel cost, climate change and ever increasing infrastructure cost paid for by the taxpayer and this represents real savings.

In fact, the Urban Land Institute recently reported in “Creating A Framework for a Green Economy”, Spring 2009 that families are searching for “foreclosure resistant neighborhoods where transit costs are low (about 9% of household expenditures)” as opposed to the “foreclosure-risky neighborhoods in the exurbs where transportation costs are high (25% of household expenditures)”. In this scenario, say the family expenditure is $4000 per month. If transportation costs are 25% of that number or $1000 versus 9% or $360 this represents and annual savings of $7680.

Put another way, by using the True Cost of Driving Calculator a home buyer can determine the real cost of choosing a “walkable” neighborhood versus a home requiring commuting and additional vehicle trips for all of life’s necessities. Using the cost savings of $8000 per year discussed above, a family could afford an additional $650 dollars per month. This monthly savings represents an additional $100,000 in home purchasing power. By utilizing this buying power a family could choose a home in a walkable neighborhood which reduces transportation costs and thereby reduces impact to the environment, is healthier for the entire family while improving the sense of community and for all these reasons is a significantly better financial investment.

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