Transportation (Spending Category Part 3)

Image courtesy of Seaskylab at FreeDigitalPhotos.net.

Happy May! We have arrived at our part 3 spending category, namely Transportation. To see other previous spending categories, please visit the archive on this site (see menu on the right column). In general, transportation is the next big expense after housing.

Many people would have thought about car expenses as transportation cost, but transportation spending covers everything that would get you from one place to another. And yes, your feet would be one mode of transportation too. Unless you walk everywhere, you would incur transportation cost. Can you think of any other mode of transportation besides cars? Let’s see, there are bicycles (yes, that’s a mode of transportation too), motorcycles, and public transportation such as buses, trains, seabus, ferries, and planes (there are private jets too).

So what expenses fall under Transportation other than the obvious fuel? For simplicity, I will assume transportation mode to be cars and public transportation (buses, trains, seabus/ferries). Here are some expenses that I have come across.
1.      Fuel
2.      Car insurance (ICBC here in British Columbia, and any extended insurance coverage)
3.      Licence and registration
4.      Maintenance and repairs such as oil change, brakes, winter/all season tires, etc.
5.      Car payments or lease payments
6.      Automobile Association membership such as BCAA
7.      Car washes (if applicable)
8.      Parking rental fee (if you have to rent a parking spot)
9.      Ride sharing fee (if you use a co-op ride sharing program)
10.     Car rental fees (if applicable)
11.      Bus/ train/ seabus/ ferry tickets
 
Crown Financial Ministries Canada’s Percentage Guide recommends that we spend about 15% (or less) of our net spendable on transportation. I’ve found that some people spend almost as much as 25% of their NET spendable income (net take-home pay) on transportation and up to 50% on their housing. This means they only have 25% left for food, medical, clothing, and others. If you suspect that your transportation cost is high and you are looking to reduce it, here are some things to consider.
 
Know the Reason for your Transportation

• If you drive a car, think of why you use the car. Is it for convenience? Is it a must because there is no other way to get to wherever you want to go?
• If you drive a car, is it to get you from point A to B? Or is it part of building your image (personal and/or work)?

 
Know the True Cost
Older cars do not automatically equate cheaper transportation cost. Some older cars actually cost more to maintain than newer ones. If you own an older car, look back at your maintenance fees, fuel consumption, etc. Compare it with

• the cost of maintenance fees, fuel consumption, etc. of a newer model or
• cost of public transportation.

The same is true for the opposite. Newer cars do not necessarily mean cheaper overall transportation cost. The combined insurance fees and the car payment may be higher than older model’s maintenance fees. So, you should know the true cost of your car, whether it is a newer or an older car.
 
Know the Purpose
Some careers require nice cars. In this case, the car expenses become business expenses. It is no longer something to get you from point A to B.
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If you need a certain car because of work, you need to evaluate if the car expenses justify the income you’re bringing in. Now don’t just do the numbers in your head and say “Yes, I definitely need the car” without putting any actual numbers down. Start with how much income you have been producing by having that particular car. Next, write down all expenses related to the car (no cheating). Compare the income and expenses. I’m sure you will realize that if your expenses are higher than your income you should probably re-consider the car or your career, or perhaps both.

I have met clients who insist on driving a certain type of car because they like the car or because they can’t bear thinking others would think less of them if they drive any cheaper or older car. If you fall into this category, you have 2 choices:
a.      Yes, sure, go ahead and drive the car. You can afford it; it’s in your budget. If necessary, you’re willing to take a second (or third) job to afford the car.
b.      Yes, it would be nice to drive it, but NO, you can’t afford it. Even with a second (or third) job you still can’t afford the car. You’ve been borrowing to afford your current lifestyle. And a car is a depreciating asset, which means it loses value over time. If you're making payments, at some point you may owe more to the lender than what the car is worth (or "negative equity" as some people call it). So stop the madness. Don’t try to look good on the outside while you are financially ruined on the inside. And by the way, do others really think highly of you when they see you in that car or is it just your presumption?
 
Know your Options
​If you’re making car payments (buy or lease) and think that you’re stuck, think again. Start with looking at the papers you’ve signed. Is it possible for you to get out of your contract? If so, what is the penalty? Could you swap it for a reliable and cheaper car? Can you change the payment terms? Know your options before you make any changes. Make an informed decision. If you can’t change anything, then just finish your obligation. Do NOT repeat the same mistake again in the future.
 
In conclusion, don’t spend more than necessary for your transportation. Find alternate solution. Know the reason for your transportation, the true cost, the purpose, and your options (when you’re bound by contract). By managing your transportation cost well, you’re one step closer to tidying up your finance.
 
For more transportation tips or help with your budgeting, take advantage of my free first assessment meeting. Effie[at]PrudentMoneyCoach[dot]com or (six zero four) 728-5139.