This is the third part of my series aimed at helping you to lower your expenses. Check out Part 1 and Part 2 as well.
Households in Germany spend approximately 14% of their total expenditures on transportation.
Do your numbers look similar? Let’s have a look then to see where you can start to save some money.
To find out where you could spend less, you’ve got to know, how much you’re spending first, of course.
As soon as you know that, you can look at your different categories of expenditures to find out, where savings potential might be hiding. Make sure you don’t aim so low that you end up with a lifestyle that’s not sustainable in the long-run. There’s one exception: If you currently have consumer debt, I would strongly recommend you spend as little as possible till those debts are gone.
Okay, now let’s get down to business.
How can you lower your expenditures for transportation?
As I want to share my experiences with you, I unfortunately have to admit that our own setup has mostly been far from optimized where transportation is concerned. Fortunately this hasn’t been a big issue money-wise in our specific circumstances. But still…
Twenty years ago, my husband and I worked in the same agency and lived in apartment at biking distance – even walking distance in fact. Our son’s crèche was around the corner. Various supermarkets, bus stops and the metro station were a five minute walk away
Then I changed employers and had to drive across town for half an hour each morning and evening. When out son was ready to go to kindergarden, we decided to move to one of the greener, outer quarters of town. My commute was the opposite direction now, but didn’t take less time. And my husband has been commuting across town since. There would definitely have been smarter options.
Optimize your housing or employment location for transport
My first tip would therefore be to look at housing and transportation as two parts of one and the same system. If you have high commuting costs right now, at least think about whether there would be any options to shorten or forego the commute if you were to move or look for employment closer to your home. Ideally, go for a distance that can be easily done by bike.
This might sound utterly crazy at first. And if you’ve been with the same employer, or if you’ve just bought a house and have a long-term mortgage to pay off, opportunity costs might be too high. But if you’re still flexible, at least do the thought experiment.
In the end, long commutes to work – or to grocery stores etc. – don’t only cost money but your time as well. Skilled workers and managers in Germany are okay with a commute of up to one hour each way, a recent study by Stepstone claims. That’s two hours per day.
And from my experience that one hour very often is more of subjective, feel-good estimate – which turns out to be longer in practice as soon as conditions aren’t optimal. Especially when someone‘s living far out. So you should definitely weigh the cost – and the decrease in quality of life – caused by having to commute against higher rents or real estate prices when deciding on where you want to live.
Mr Money Mustache is quite passionate on this topic as well – you might want to read his post „The True Cost of Commuting“. And that’s with gas prices much lower than in Germany.
If you really do need a car
Since public transport is not available everywhere and you’ve no means to influence its price if it is, I’m concentrating on cars as main factor of transportation costs in this post. And even if public transport is good in your area, you will only save money if you use it as little as possible, normally getting around by walking or taking your bike.
If you’ve read Mr Money Mustache’s post, my next tip will seem familiar since I totally agree with him on this: Should you absolutely need a car (or definitely don’t want to give it up), don’t buy a new car, buy an unglamorous used vehicle. Obviously NOT a big gas-guzzler. That goes for any car you buy, if you want to keep transportation cost down, of course.
There’s two issues I have with buying a new car: In comparison with buying used, the absolute amount you have to pay is quite high, which means it ties down more capital as well. And this is in sharp contrast to the fact that your new car will depreciate over-proportionally within the first years.
Does (y‘)a car have to be a status symbol?
Some people will totally get this on a rational level, but they will still only be comfortable with buying a new car. They might be afraid of high repair costs when buying used. My personal experience has been that new cars can come with massive repair costs as well, but at least you’ll have more extensive warranties.
So if that’s the way you tick, I would go for low(er)-cost-manufacturers such as Dacia or Skoda. I decided on getting a Skoda Octavia as a company car at one point and was extremely happy with it. And this is from someone who can get quite passionate about cars – my other company cars included the VW Beetle before it officially came out in Germany, an Audi TT and an Audi Convertible. But that’s just not a priority for me anymore. Today, I’d get much more excited about trying new mobility concepts than burdening myself with fixed costs for owning a car.
Leasing and financing
And even if cars are your thing, you should stay away from leasing and financing models if your car is for private us. There’s people who view this differently, which is fine, but you should be calculating honestly with yourself if you consider such models. At the end of the day, leasing companies and banks want to make a profit, and in most cases this will not lead to a win-win situation for you.
When financing a car, you take out credit on a good that starts to depreciate as soon as you drive off the dealer’s premises. Purchase and maintenance incurr quite substantial costs already. Heaping costs for financing one way or the other on top of this, leaves you with less room to invest into your financial independence. You get to decide what you want to prioritize.
Optimizing in (early) retirement at the latest
We currently have two cars. My husband’s company car which is taxed as a non-cash benefit, i.e. there is a certain amount of money taken from his net pay for the benefit of having the company supply a car, and a 21 year old used car. That car we bought ten years ago when I worked freelance for a short period of time. My husband does need his car for company business quite often, but it also saves him time to commute, as using public transport would take substantially longer.
I use my car very rarely. So rarely that I have to make sure it’s excercised enough. Our main grocery store is less than ten minutes on foot. The baker, pharmacy, drug store, hair dresser, several doctors just the same. There’s even a small general store in the center of our laid-back quarter.
There’s a bus stop, too, which will take you to the U- or S-Bahn, whichever direction is more convenient. If I want to go to the discount supermarket or an all-organic food store (they even grow their own produce), it takes me 25 minutes by foot or ten minutes by bike.
At the same time, we live between two nature reserve areas, and we only have to cross the street and a small patch of woods and are right on the river Alster and the Alster trail after a few more steps. You can go hiking, mountainbiking or canuing there. On top of that you have the choice between several riding stables, tennis courts, sports clubs, and so on…So it’s a location with a very high leisure quality without having to take out your car at all.
Bring in those mobility solutions
Unfortunately, carsharing providers such as Car2go or Drive-now are not availabe in our part of the city yet. If this were the case, I would probably go car-less already. I find the future of mobilty solutions extremely fascinating and am really looking forward to being part of this development.
My husband, on the other hand, will proably never go without his own car. Every one has their subjective definition of freedom, of course. In any case, we will be able to do with one car only, when we both don’t work anymore. And we should be able to use that car as economically as I use my car now. Thus, we will be set-up smarter in (early) retirement than we are set-up now.
But better like this than the other way round ;-)…
Financial Independence Rocks!