Cost of the commute
On the topic of radical retirement planning, we should consider the costs of cars and travelling.
Take the example of a couple who each travel 19 miles a day in the commute which takes 40 minutes. Most would think this is not “too-bad”.
But, think again – 38 miles at 25p per mile cost is £9.50 a day plus the time cost. If you work 240 days a year that works out to £22,800 but that is not the opportunity cost. Had that been invested over 20 years with a growth rate of 5% you would have £78,096.
40 minutes a day each way adds up to just under an extra day a week. This is two and a half months extra pay a year. If you take home £2,500 a month each then the value of your time is £12,500 a year. If this was invested monthly at 5% you’d end up with £411,033.
So, that commute in the morning (where you risk your life) is actually costing close to half a million. If that sounds ridiculous that is because it is.
Also keep in mind that many cars have a loan associated to them. So, your radical retirement plan could include these actions:
- Move closer to work, work from home or change jobs
- Walk more and/or use a bike every day
- Only have one much cheaper car*
*Even if you allow for a small fund to keep the cheaper car on the road you will be far better off.
Keep in mind that the time it takes to walk or ride to work counts against the time you’d need to spend in the gym. And, it also means you can cancel the gym membership that you don’t use anyway.
This also applies to non-business trips. Think twice before you head off for the day on a jolly and instead think of creating a more local lifestyle.