Are You Wasting $68,000 on Gas?

By Tim Lemke on 11 April 2016 0 comments

Commuting to work can be a real hassle, but have you ever added up what it's costing you financially?

With gas prices on the low side right now, it's easy to lose sight of the cost of driving. But if you have a commute and choose to drive, you may be losing out on hundreds of dollars a year and potentially hundreds of thousands of dollars over the course of your working life.

How is that possible? Well, let's crunch some numbers.

According to the U.S. Census Bureau, the mean commuting distance in America is about 38 miles. There are some parts of the country where commuters travel much further, and some mega commuters are known to average more than 200 miles each day.

Let's assume you're an average person driving that average 38 miles to and from work each day. And let's also assume you're paying an average amount for gas, which is currently about $2 per gallon. If you drive a car that gets 30 miles per gallon, you're spending about $2.50 a day on gas, or about $12.50 a week. (See also: This Is How the High Cost of Cheap Gas Hurts You)

Assuming you may take a couple weeks off throughout the year from driving, this adds up to $625 annually.

That's a nice chunk of change, but it's not the end of the story.

Compound Interest Is Your Friend

Having an extra $625 in your pocket at the end of the year is great. But you could actually end up with a lot more, without doing a thing.

If you put that extra money away in a run-of-the-mill savings account with a 1% interest rate, that could be $631 by year's end. Okay, so just $6. No big deal. But extrapolate that out to 30 years and you end up with $842. And if you put in $625 every year during that period, it's a whopping $22,000, thanks in large part to interest compounding on itself.

Invest and Build True Wealth

So now we're at $22,000. That seems like a nice addition to the nest egg. But imagine tripling that total.

If you take $625 annually and place it in an index fund or another investment that mirrors the broader stock market, you can boost your savings significantly. Assuming a typical annual return of 7% from the S&P 500, you'll end up with nearly $68,000 at the end of 30 years.

That's $68,000 by not spending money on gas, even with prices as low as they are now. And that's just for an average commuter. Someone who drives 60 miles round trip for work could save $108,000 over 30 years. A long-distance commuter who goes 90 miles a day could save $163,000.

Total Commuting Costs

Keep in mind, too, that gas is not the only expenditure when you commute. The Citi ThankYou Commuter Index last year said the average American spent $2,600 a year commuting. This includes people who might pay for public transit, and also factors in the cost of repairs and depreciation on your car.

Using the same calculations as above, that $2,600 could turn into $3,504 over 30 years if placed in a savings account. And $2,600 placed annually in an index fund could turn into $281,000 within three decades.

Keep all of this in mind when figuring out how you'll get to work, what job to take, and whether you can get away with working from home or even being self-employed.

How much are you spending on a daily commute to work? Share with us in the comments!

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