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The Cost of Commuting

Posted April 1st, 2008 under myths and truths, money matters.

Live in the city, or commute from the country?

Many people are aware that land and homes are cheaper the further away one gets from the city center. The prospect of enjoying the country lifestyle, plus saving money, is very tantalising. But is it really cheaper to commute? By comparing the cost of commuting to the savings on home costs, we can find out.

The cost of car ownership

An very inexpensive car costs $15,000 to buy. Assuming you own the car for 10 years, and drive 20,000km per year for general use, the result is 7.5¢/km.

In addition to this base cost, the car must be fuelled. Assuming the most efficient engine requires 6L/100km, and with current fuel costs around 90¢/L, the result is an additional 5.4¢/km.

A third consideration is maintenance and repairs. Considering only those maintenance costs which are inevitable (oil changes, spark plugs, brakes, alignment, battery, etc), a conservative estimate is 3.5¢/km.

Totalling these three factors (ownership at 7.5¢/km, fuel at 5.4¢/km, and maintenance at 3.5¢/km), we arrive at a minimal cost of 16.4¢/km. Keep in mind that your actual costs may be higher if you purchase a more expensive car or a less efficient car, if your car requires extra maintenance, if fuel prices rise, or if you are involved in a collision of any sort.

Translating commuting costs into home prices

Let's consider commuting 30km each way, five days per week, for a total of 1300km/month. At our cost of 16.4¢/km, this amounts to $213.20 additional cost for the distance commuted.

At 5.5% interest, the cost of a mortage loan is approximately $6.10 per month per thousand dollars borrowed. In other words, if commuting costs you $213.20 per month, you would need to find an equivalent home that costs $35,000 less than in the city – just to break even! And this is without considering your time wasted on the road...

However, the point of this article is not to discourage you from living in the country. On the contrary, if you love the country lifestyle, there is no reason not to pursue it. Just make sure you do the math first if saving money is your prime concern.

Are you curious whether commuting will be financially worthwhile for you? Just ask me, I'll be happy to help.