Monday, February 06, 2006

Embracing Public Transit

Back in my “Simple Life Changes…” post, the researchers cited bringing one’s lunch, taking the bus and buying in bulk as three small habits that can have appreciable long-term saving benefits. While I analyzed BYO lunching last week, I thought I would take a closer look at public transit.

I have to discolse that in and of itself, I don’t enjoy the act of driving. Earlier in my career I commuted across the city, and after four years and one serious, if not inevitable accident, I knew I had enough. Coupled with the fact I live and work near an urban area, I’ve been taking public transit for the better part of the last 3 years.

I actually have two public transit options available to me - a bus route and a train route. The train offers a level of comfort over the bus and is about a half-hour shorter each way. At the beginning of the year I wanted to understand what the impact of taking the train full-time would be, so I worked on a little budget forecasting – the chart below summarizes costs and savings associated with each option:

A couple notes:
  1. These models are based around 20 working days per month.

  2. The car model assumes my current automobile insurance would go up about $20/month if I was driving to work, as I currently receive a 'barely on the road' discount.

  3. Relative savings compares the transit option with most expensive option (car).
As is readily apparent, I have been enjoying a huge savings by taking the bus, and most of this would be lost if I ‘upgraded’ to the train. Annually, this savings of $3,120 equates to 15% of my gross annual savings goal. Invested for five years at an assumed 7% rate of return and this becomes $17,942.31 – a frugal win and enough to say, buy a car!

Based on my current situation I'll be sticking it out on the bus, as low-glam as it is, for at least the near future.

A couple other transiting fringe benefits:
  • I can sleep (in fact, lately I have been factoring this in)
  • I can read (enjoying The Investment Zoo at present)
  • It’s more environmentally friendly
Update (02/08/06): A couple of people aptly pointed out that in the 'car' costs I wasn't including depreciation, maintenace, wear and tear, etc., and in the transit examples, I wasn't factoring in the expense of additional travel time. I did consider these factors, but as you can imagine, unless broader assumptions are made, the concrete impact of these is difficult to quantify. Though I still feel the above illustrates the closest approximation of actual hard costs, I did want to see what the impacts would be, even if more hypothetical, should travel time and maintenance costs be included. The chart below is based on the following additional assumptions:
  • As suggested, I'm using the prescribed $0.42/km to estimate maintenance costs, based on the Canada Revenue Agency guidlines for reimburseable mileage.
  • I'm using a rate of $28/hour to measure my 'time costs', based roughly on my after-tax hourly wage. (I know, this model is getting somewhat stretched)
In addition, I also added gas and maintenance costs to the transit options as in both cases, I do need to drive a short distance to access these. Using these new assumptions, our model looks something like:

Even if only hypothetical, this shows very different results, and highlights for me the willingness I have at my current life stage to sacrifice time (for better or worse) in order to save money. Once you factor time in, its a whole different story. I don't need to ask myself which option my young family would prefer.

Thanks for the feedback - I learned more in this exercise than I planned!

4 Comments:

Blogger Kay said...

And you are saving the environment from pollution through one more car!

Good idea!

2/08/2006 1:33 PM  
Blogger 2million said...

I like this. Don't forget the savings from reduced maintenance on your car. By not driving you could extend time between maintenance, oil changes, tires, and you may not have to replace your car as often.

2/08/2006 2:03 PM  
Anonymous Anonymous said...

To expand on 2million's comments, you may want to figure out what the relative depreciation would be.

If you want a simple way to estimate the costs due to depreciation, maintentance, insurance, etc, just use the CRA's standard method of calulating auto expenses: $0.42/km.

On the non-monetary side of things, you might want to quantify the difference in commute times.

2/08/2006 5:27 PM  
Blogger Humble Investor said...

Thanks for the feedback.

2M and Anonymous- using some additional assumptions I added an update to my original post. Have a look and let me know what you think.

2/08/2006 10:01 PM  

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