Is car ownership really a deal breaker for early retirement?
Anyone who is interested in early retirement has probably heard of Mr Money Moustache, right?
And if you know who he is and have been on his blog, then you probably know his stance on car ownership and using cars.
He’s not their biggest fan.
In fact, he reckons that cars are one of the biggest obstacles to reaching our early retirement dreams.
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SO TODAY I’M GOING TO FIND OUT THE TRUTH, DOES CAR OWNERSHIP REALLY AFFECT YOUR EARLY RETIREMENT DATE?
Now My Money Moustache doesn’t necessarily say that you shouldn’t have a car, but he does heavily emphasize making the right car choices so you don’t become a ‘car clown’.
And he does bring up some very good points (if you are interested I recommend you read his article about reducing your car costs, they are not your normal tips!)
So having read all he has to say, a few other’s opinions and always looking for ways to reach that early retirement life sooner, I thought I would do a little case study on myself on whether owning only one car (or no cars ahhh) can really make that early retirement date any closer?
Related Reading:
Introducing Early Retirement and Financial Independence; plus the math behind it
Renting Versus Buying: Which is best for early retirement?
Can you really retire on a low income?
SO HOW AM I GOING TO WORK THIS OUT?
Because I’m currently not earning a full time wage (hello starting my own blogging business) I therefore don’t really have a realistic predicted FIRE date.
However, I think we all know that the lower your annual expenses the better for reaching early retirement.
(Within reason, you could spend all your free time reducing your expenses by a few dollars. But if you had spent that time developing a side hustle you could have made hundreds of extra dollars instead, which would have been wayyy better for FIRE.)
Therefore I will be looking at how much money we could save over ten years (which for many is a realistic early retirement timeline) if we went down to one car or even no cars!
LET’S GO OVER SOME IMPORTANT BACKGROUND DETAILS:
Our household consists of my boyfriend and I, we have a car each.
I have a 2014 Skoda Yeti with 40,000 miles on it, fully paid for, that is worth around £9,700 ($12,700) today.
The boyfriend has a 1997 Mazda MX-5 with 100,00 miles on it, also fully paid for (no car loans in this household) that is worth around £1,000 ($1,300).
In case you have no idea what these cars are, my Skoda Yeti is a four wheel drive compact SUV and the Mazda MX-5 is a two-seater convertible.
In terms of car needs the boyfriend drives to work each day and often has to travel quite a bit further for one off events so he needs a car available. I work from home and we live in a town where I have walking access to shops and good public transport, so realistically I rarely need a car.
Because of this it seems obvious that we should get rid of one car to save money. However I am wary of doing this without checking calculations because honestly I just love the convenience of having my own car (one of the reasons why this post came about).
HOW MUCH DO WE CURRENTLY SPEND ON OWNING TWO CARS?
Of course the only way to see if we can save any money on our cars is to know what we spend now. Luckily as I am a bit budget obsessed (would you expect anything else from a personal finance blogger) that’s easy!
I spend on the Yeti per year:
Fuel – £840
Car Maintenance – £840 (This includes MOT, tax, repairs and services.)
Insurance – £290 (In all honestly the car insurance is very low because my dad use to work in this industry and he arranged it…)
Total – £1,970
The boyfriend spends on the MX-5 each year:
Fuel – £1,440
Car Maintenance – £600 (Includes MOT, servicing and repairs)
Car Tax – £257
Insurance – £350
Total – £2,647.16
Total spend on both cars each year – £4,617
Considering our annual expenses budget for the two of us is £22,635, that £4,617 is a fair chunk and it would definitely be good to reduce that!
IF WE CARRIED ON WITH OUR CURRENT CAR SPENDING, HOW MUCH WOULD WE HAVE SAVED IN TEN YEARS IF WE GOT RID OF BOTH CARS?
I’m going to keep this simple and assume the same cars and spending stays the same.
Not doing anything for inflation that would total £46,170 saved.
Just for some perspective, if we invested that £4,617 each year, after ten years we would have around £66,022 (assuming an average market rate of 7%).
Obviously, this is currently unrealistic because the boyfriend needs at least one car for work, but that £66,022 is a big chunk of potential early retirement funds!
SO LET’S HYPOTHETICALLY GET RID OF ONE CAR:
It would be most logical to get rid of the MX-5 (apologizes to the boyfriend). It’s kind of an impractical car being only a two-seater, and it’s a lot older than the Yeti so it more likely to need work doing on it soon.
All the money spent on the Yeti would stay the same except the fuel allowance.
Now the Yeti does better miles per gallon than the MX-5 (around 30 MPG from the MX-5 versus 40ish MPG from the Yeti) plus as it wouldn’t be sat waiting for me to drive it around each day I would no longer be wasting fuel driving silly little journeys for errands.
I would estimate that we would need around £1,920 per year in fuel.
Therefore our household’s car expenses per year would be:
Fuel – £1,920
Car Maintenance – £840
Insurance – £290
Total – £3,050
A total saving of £1,567 per year
Not bad!
Therefore our car costs would be £30,500 over ten years (versus the £46,170) saving us a grand total of £15,670!!!
THAT SOUNDS GREAT, BUT WILL THAT REALLY HELP YOU REACH EARLY RETIREMENT SOONER?
Good question and I mean that’s why we are here right!
To work this out I will be using my favorite early retirement calculator from Networthify.
As I’m currently not earning a full time wage (I’m starting my own business working on this blog!) to work this out I will assume I earn a similar wage to my boyfriend. Which is £16,800 after tax. This is realistic as I could go out tomorrow and get a job with that wage. (Update he actually earns more now but we will keep the math the same for ease.)
I need to do two different calculations with the calculator, one showing how long to early retirement owning and running two cars. And one showing how long to early retirement only owning and running one car!
First, I will need a few digits to put into the calculator:
Annual household income – £33,600
Annual household expenses with two cars – £22,635
Annual household expenses with one car – £21,068
Current portfolio value (amount of savings we already have) with two cars – £49,000
Current portfolio value (amount of savings we already have) with one car – £50,000 (as we could sell the MX-5 and get around £1,000 for it)
Plus when I insert the figures I will be changing the annual return on investment to 7% rather than 5% as this is closer to the annual average.
Therefore the years to early retirement with two cars is: 22.9 years
While the years to early retirement with one car is: 19.9 years
So going down to a one car household would mean we have to work for 3 less years! (Assuming no change in our income or expenses…)
Now this may not sound like much, but combined with other lifestyle changes like renting instead of buying, we could actually take our retirement age down by like over half a decade!
Definitely, food for thought, particularly if you have a car on finance, or one that isn’t very economical, those savings could be even higher and your time to early retirement reduced even more!
As always if you have any questions, or just something to say on the matter then chat away in the comments below or email me at sammy@wellandwealthy.org, I do answer each one!
