Actual Cost

The True Cost of Comutting, *Really*. (Counter-Math to MMM Article)

This is a response article to the internet sensation of “The True Cost of Commuting” written by MMM (Mr. Money Mustache) and later re-posted on lifehacker.

If you haven’t read the article, I suggest doing just that. That’s because the numbers behind the article are mind blowing, but how real are they? When statements like below are said, they take you back:

“So each mile you live from work steals $795 per year from you in commuting costs.”

“In other words, a logical person should be willing to pay about $15,900 more for a house that is one mile closer to work, and $477,000 more for a house that is 30 miles closer to work. For a double-commuting couple, these numbers are $31,800 and $954,000.”

So let’s take a step back and do some of our own calculations.  Note this is a very similar comparison to the article linked.

Gas: $3.00 a gallon / 30 MPG = $.10 a mile (same per mileage because article assumed $3.50 / 35 MPG)
Oil: $25 / 5000 miles = $.005 a mile
Tires: $300 / 50000 miles = $.006 a mile
Misc repairs, wipers, etc: $200 / 20000 = $.01 center

Total Cost per Mile: ($.121 per mile + depreciation of car value) * your travel distance in miles

So how much does your car depreciate?

Well that’s a little tricky, being that it is very subjective to your car’s value and reliability. If you bought a brand new $22k Honda Accord for instances, put 200,000 miles and salvaged only $2k out of the car, your cost per mile was $.1 per mile. If you had a $3,000 used car that got 50,000 miles and salvaged for $1,000, your cost was only $.04 per mile.

Let’s split the difference and add $.075 per mile in depreciation in car value, an amount that can be lower by choosing a frugal vehicle.

Our current total cost per mile: $.196 per mile, let’s round up to a solid $.20 per mile. Note that this is considerably HIGHER than the related article calculates (when not factoring in opportunity costs or hypothetical pay), therefore our math should be even more in favor of reducing your commute.

Your 38 mile round trip commute therefore costs $7.60 a work day. If you are a two commuter household, both driving 38 miles (very bad situation), you are paying $15.20 a work day in commuting costs (ignoring parking).

Let’s assume you work 240 days a year, meaning your yearly cost is $3,648 for both individuals. That’s $36,480 over 10 years (ignoring inflation since wages hopefully also pegs to inflation) assuming both people work all 10 years and both commute 38 miles each and every single work day. The chart below shows you the math panned out, with a breakdown of your % of income going towards commuting costs.


Actual Cost of Commuting
Actual Cost of Commuting

So where does that “pay $954,000 more for a house come into play?” What about the idea of it costing you $125,000 of wealth over just 10 years? Well it comes into play with hypothetical opportunity costs and hypothetical compounding. See the article assumes you should be paid $25 an hour (tax-free) for your time while driving, because you value your time at $25 an hour, and that apparently driving a vehicle deserves the same pay as your job. Meaning if you both spend the “80 minutes behind the wheel” each day, your family should receive a tax free $16,000 income source ($25 * 2 people * 240 days * 80 minutes / 60 minutes).

Then you should apply the $16,000, and the smaller, more real $3,648 in actual commute expenses into a 5% mortgage, which is effectively a compounded return. Let’s also ignore the fact that 5% mortgage is very high and that you can deduct interest rate (for now). Just like that, presto! Things get crazy and headline worthy. Below is taking our calculation a step further using these hypothetical.

Implied Cost of Commuting
Implied Cost of Commuting

Suddenly even though you are making $50,000 a year, and only spending $3,648 on actual expenses commuting, you’re apparently missing out on more than half of your entire take home over those 10 years!

What’s Entirely Wrong With This Article

Let’s first address the fact that the article assumes you deserve a tax free $25/hr for driving. Unfortunately that’s just not the way the world works, but I would love if it did. Of course you could live within walking distance of your job and try to find another part-time career that pays $25/hr with the time savings, but if your marginal rate of tax is 30%, it would have to be closer to $35.71/hr (which is around a $75k income rate annualized). There is a big difference between dealing with driving and listening to the radio, and finding some sort of part time job with a comparable income rate to your job (or higher) that you can do basically at your own discretion. Also if you applied this logic to other aspects of your life, you wouldn’t do anything.

That dinner you cooked together, should have paid you $50.

Cleaned your house? Where is your $25/hr? If you can so easily make $25/hr at your discretion, just hire it out at $10/hr and net the difference. Or don’t clean at all (thereby wasting your time), that’s how you build wealth apparently.

This idea is a little disconnected with reality.

The second major flaw is that the mortgage investment is 5%. Well if your mortgage rate is 4.5% (more current rates) and your itemized marginal rate is 30%, then your actually net rate is closer to 3.15%. Compound 5% over 30 years, it’s 4.32x, and if you compound 3.15% over 30 years it’s 2.53x. Meaning that little difference suddenly inflates what little reality is left by an additional 70%.

So let’s do a little comparison.

Article Assumes you will spend $38 a day that could have been put into a 5% compounding rate to get about $125,000 over 10 years.

In reality it’s closer to $15.20 a day (less than half) that could have been put into a 3.15% compounded rate growing to $46,277 over 10 years.

Not nearly as exciting. Not to mention that if you troll your local grocery stores gas perks, it’s likely to be far less.

What is Right About This Article

Makes you think about your commute to work. Yes the numbers in the article are just to get your attention, but take the number I came up with above of $46,277 over 10 years. That’s $4,627 a year of potential wealth creation (note this is NOT just $4,627 of your paycheck per year, this assumes you are compounding your cash flow at 3.15%).

Maybe the article will make you rethink your house location trying to cut the commuting time down. Perhaps you look at an house with lower commute time and higher taxes and find it much easier to justify the cost difference. The bottom-line here is that the article gets you thinking as always, even if it takes ridiculous math to spark your interest. I also admire someone who assumes their time is worth a tax-free $25 an hour and can be turned on and off like a faucet at their discretion.

The reality though, it’s not as extreme as this article makes it out to be. Of course I would encourage you to look for ways to cut your commute costs such as public transportation, carpool, and moving closer, but don’t go spending that $954,000 more on your house.

One thought on “The True Cost of Comutting, *Really*. (Counter-Math to MMM Article)

  1. Good article. I was trying to articulate the absurd math in a reddit thread earlier today, but didn’t have the words lined up quite like you. Thanks google, for leading me here!

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