It’s no secret that a big part of our financial engine is the type of career we have. Some offer more compensation, others not as much. Within each career track, there are different job opportunities that can pay more than others.
It just makes sense to consider these factors when looking at our ability to earn and save money. That being said, does it make sense to strongly consider our daily commute as well?
Personally, I think it does. Speaking from my own experience, the length of one’s commute to work in terms of time and distance can play a significant role in the ability to move our finances forward.
I’ve had commutes of varying degrees over the years. The shortest commute I’ve had was 5 minutes each way. That was many years ago, and actually that was the case with 2 jobs I had. Funny, I really took it for granted back then and didn’t realize how nice that was. On the other end of the spectrum, I’ve driven as much as 1.5 hours each way, and had the commute become a big part of my day. Having experienced both extremes, as well as points in between, it’s clear that there are significant costs involved.
Let’s take two examples that are a little bit less extreme than my commutes, and assess the costs.
Commute #1: 10 mile/15 minute commute each way
Commute #2: 40 mile/60 minute commute each way
Also, let’s assume that your car gets 25mpg on average, the cost of gas is $3.50 per gallon, and you’re working 22 days per month at 8 hours per day.
In terms of gas costs, your monthly/annual costs are as follows:
Commute #1: $62 per month, $739 annually
Commute #2: $246 per month, $2,957 annually
Clearly, that longer commute takes away from the amount of money one could save per year. The difference between the two is about $2,218 per year. Think about what you could do with that $2,217. If you chose to spend it, that would make one heck of a vacation! Or, if you choose to save it, that would be a nice addition to your retirement savings. When compounded over time, this can result in even more money.
While somewhat less direct or quantifiable, there is a cost associated with wear and tear on our cars. To illustrate this, let’s assume that our car is a $20,000 vehicle that we expect to drive all the way to 200,000 miles. Taking these assumptions into account, the amount of value that we’re losing from our vehicles will be as follows:
Commute #1: $44 per month, $528 annually
Commute #2: $176 per month, $2,112 annually
The difference between the two is about $1,584 per year. Now, this is using straight-line depreciation based on mileage – excluding any minimal salvage value. This calculation does have a number of assumptions built-in and doesn’t reflect direct cash expenditures, but it’s clear that a longer commute wears out a car quicker – which accelerates our future spending on our next car.
Let’s consider this from an opportunity cost perspective. If we’re in the car trying to get to a job, it’s time that’s job-related and not personal. It takes away time that we could spend doing other things if not commuting. Time with family, housework/errands, and exercise are activities that first come to mind, among others. There’s value there, even if it’s hard to quantify.
Well, let’s give it a try anyway, even if it’s not an exact science. For sake of example, let’s assume someone with a basic, annual salary of $50,000. That person’s time has value, as evidenced by the salary. Factoring in the earlier assumptions about hours and days worked (22 days per month, 8 hours per day), this person’s hourly wage comes out to $23.67 per hour. Going with this figure, the opportunity cost of the commute is as follows:
Commute #1: $260 per month, $3,125 annually
Commute #2: $1,250 per month, $9,375 annually.
Ok, I know that some folks won’t share my views on opportunity cost of time, but our time is valuable. If you do want to attempt to quantify it, it becomes clear that there’s value that’s being expended during our commutes to work. In this case, the difference between the two is about $9,375 per year.
At the very least, we can directly quantify the cost of gas with a longer commute. In that case, this “typical” example of short (15 min) vs. long (60 min) commute indicates a:
- $2,218 difference between short and long commutes based on gas costs.
- $13,176 difference between short and long commutes, when adding in the indirect costs of car wear and tear, and the opportunity costs of time.
Bottom Line: Clearly, no matter how many layers of costs we want to include in such analysis, it’s clear that there’s an impact of commuting that might be more than meets the eye. So, when evaluating your current job or a future job opportunity, it’s worth taking a very close look at the overall commuting costs.
My Questions for You:
- If you’re working (or have a spouse that is), what’s the total commute like? How does this play a role in the quality of your life?
- Do you ever think about the costs of a job commute, and the impact is has on your finances?