It’s often hard to assess the total cost of renting vs buying.
- Renting a house (plus renters’ insurance) versus owning a house (plus homeowner’s insurance, property tax, and maintenance, and possibly offset by property value appreciation)
- Owning a timeshare versus renting a vacation house once a year
- Taking a taxi / using a ride-sharing app versus owning a car (and paying for insurance, gas, and vehicle registration)
In the pre-ride-sharing era, a taxi would have a taxi meter running at all times, showing the total costs of the trip.
A privately-owned vehicle could also a total-costs meter in the dashboard.
Vehicle ownership costs involve:
- Insurance premiums (monthly or annual)
- Vehicle registration (annual)
- Car payment minus depreciation (if applicable)
Fig 1: A blank “total cost” meter for your car that would tell you how much you’ve paid in car costs.
Setting up the details for this meter would be easy. Each parameter can be easily input and then calculated by the meter itself from that point onward, with no further user input:
- The car knows how much gas has been put into it (and can accurately estimate the local gas price to within 5-10% by querying the Internet, assuming that this meter pairs with your phone somehow)
- Car payment details only need to be input by the user once
- Likewise, annual insurance premiums and vehicle registration costs rarely change, and would only need to be input one time.
Fig 2: When filled in with real data, the carefree days of car ownership are over, and you now must stress out about every tiny trip you make!
The Math for a car that is only used for commuting, with no passengers:
A ride-sharing-app ride from a close-but-not-downtown area of a major city to downtown, assuming light traffic, is frequently around $10. Let’s assume this is a work commute that happens twice a day, and that this is ALL the car is ever used for.
Annual cost: 50 work weeks per year * 5 days per week * 2 rides per day = 500 rides per year
- 500 rides per year * $10 / ride = $5000 annually with a ride-sharing app
Let’s compare this to car ownership, assuming a $20,000 car, financed at 0% over 5 years, and worth $7500 at the end of 5 years (depreciation = $20,000 – $7500 = $12500).
Total cost of car ownership:
- Car payment: –$333 / month / mo
- Car equity obtained (with price at end of 5-year period): +$125 / mo
- Insurance, assuming $1000 per year: –$83 / mo
- Gas price, assuming your commute is a short 5 miles each way and you get 25 miles per gallon, so that’s 10 miles per day, or 0.4 gallons per day. 0.4 gallons * 30 days = 12 gallons per month * (current gas price), which we will assume as $3.00 per gallon = –$36 / mo.
- Car registration, assumed to be $150 / year: –$12 / mo
- Assume that downtown parking is $100 / month: –$100 / mo.
- Average maintenance cost per year, figuring a $500 maintenance cost every 2 years (includes tires, oil, etc.): –$21 / mo
- -333 + 125 – 83 – 36 – 12 – 100 – 21 = $–460 / month
- Total = $5520 per year to own a car
So in this scenario, you would theoretically save $520 per year by not owning a car at all, although in this particular case, you would also not have a car for any other method of transportation.
So if your numbers look like the ones above, you should probably actually buy a car!
Uber and Lyft should promote this app for people living in major cities! Most of them probably don’t realize how much their car actually costs.
PROS: Good for ride-sharing companies!
CONS: Bad for car manufacturers!
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