The hour you spend driving your car may be the most expensive hour you spend each day.
It's no secret that cars are expensive. Ownership, gas, insurance and maintenance costs all add up. And if you drive your car for a total of 1 hour a day, that single hour is probably the most expensive hour of all. Your home probably costs more than your car, but hopefully you spend more time in your home than your car. On a per hour basis, your home is probably a better deal than your car. In this article, we look at the cost of the hours in your day and imagine what life would be like if every hour cost as much a the hour you spend driving.
The Big Hours
The commuting hour you spend each day is a big hour. If you require 30 minutes each morning and 30 minutes in the evening to commute to and from work, that hour may be the biggest hour of your whole day. If your car is financed at 6% over 5 years for $30,000, your monthly loan payment will be $580.08. If that car gets a combined rate of 30 miles per gallon, your annual fuel costs will be about $1,450.00. Your insurance will vary based on your prior driving experience, but it will probably be somewhere in the range of $2,000.00 per year. In total, your car will cost $867.58 per month. At 1 hour per day, that means that hour costs $28.91.
Your cell phone may be the subject of much controversy, because on average you may spend a total of 527 minutes a day staring at its screen. That's more than 8 hours a day, and people typically keep that pace up every day - not just weekdays. The bad news is that much attention on your cell phone screen likely means you are unable to pay attention to much of anything else. But given your cell phone bill is probably a total of $963.00 per year or $80.25 per month, the hourly cost of your cell phone use is only about $0.33.
In this day and age, your home phone likely does not get your attention for a full hour each day. With so many alternatives to a landline, such as your mobile phone or internet tools like Skype, you probably spend less time each day on your home phone. But if you have not yet crossed that threshold of cutting the cord, you still pay for the possibility of using it. If you are like most Americans, you pay $353.00 per year or $29.41 per month on your home phone. If you spend 10 minutes per day on your home phone, then on an hourly basis, the cost is $5.88.
Adding it up
If these services cost what a car costs, your bills would be pretty scary. If a car costs $28.91 per hour, then the 10 minutes you spend each day on your phone would be the equivalent of $144.55 per month! Your cell phone bill would be an insane $6,938.40 per month!
Adding up all these bills means you would be on the hook for $7,950.53 each month in bills. With bills that expensive, the absolute minimum annual income you would need would be $95,406.36. However, your bills are not the only thing you spend your money on. After all, you still need to have a life, with things like restaurant visits and retirement savings. In our article, How Much House Can I Afford in 2018, we introduced the notion of a homebuyer's profile. Within that profile, we suggested allocating 6% of your net pay to transportation, 6% to insurance, and 8% to utilities. By allocating your bills according to that profile, and assuming that your entire transportation, insurance and utilities budget goes to your car, cell phone and home phone bills, your net pay must be enough so that 20% of it is equal to $95,406.36! Therefore, your annual net pay would need to be $477,031.80!
The Point On Method
Now I know what some of you may be thinking: not all of these bills are pay-as-you-go. For example, whether you make one local call a month or 400, your home phone bill will still be the same amount. There is no question that type of billing is different from the money you pay for driving, where the more miles you put on your car, the more you must pay for fuel - as well as more for wear and tear maintenance.
But this distinction is irrelevant: the whole point is that if the phone company believed the market would bear a pay-as-you-go model, and they too could charge the same amount per hour as you pay for your car, every phone company on the planet would do it in a heartbeat!
The real question is why do we - as participants in the market - allow cars to command such an enormous hourly rate?
AlternativeTo
The popular website AlternativeTo suggests software alternatives for people who require a free or opensource version of a commercial software product. In a similar way, with costs for cars as high as they are, consumers have begun the process of meaningfully looking for alternatives to car ownership. Services like Uber and Lyft provide opportunities for people to get from point a to point b without actually having to pay for the entire spectrum of car ownership costs.
As an added bonus, people who are extroverted get the opportunity to meet new people - the drivers of Uber or Lyft vehicles. Of course, introverts face a disadvantage in this regard, but still benefit from the enormous cost savings of the sharing economy versus that of car ownership.
Summary
Fortunately, all of your bills are not a expensive on an hourly basis as your car. If they were, you would probably need a job with a much higher income. Looking at these costs begins to frame a picture where consumers should seriously evaluate if a car's costs are actually worth it. With services like Uber and Lyft, consumers have a meaningful alternative to car ownership.
Do you spend $28.91 per hour owning a car? What other items cost that much in your life? How do you control costs like that so you are not forced to try to locate a job that has a net pay of $477,031.80?