“In guarding their fortune men are often closefisted, yet, when it comes to the matter of wasting time, in the case of the one thing in which it is right to be miserly, they show themselves most extravagant.” -Seneca
Over the past few days, I have been looking at houses and apartments to potentially rent when I start working. My top consideration is probably the monthly price but right behind that is the distance from my job. I would like to minimize my commute as much as possible. When I tell people this almost everyone disagrees and thinks that it would be better to live around 45 minutes away from work so that I can live at the beach. My first response is that if I lived at the beach, I would not be utilizing what the beach has to offer on the five days that I work through the week and that I would rather drive 45 minutes to the beach on the weekend instead of 45 minutes to work five days a week.
Even after explaining this, most people tend to disagree, and I think it has to do with people undervaluing their time. I wanted to do some math to calculate just how much a long commute is costing people. When commuting there is the obvious cost of gas but, more importantly, there is the opportunity cost of your time that most people don’t think about.
For example, I’m going to compare two hypothetical commutes of 45 minutes and 10 minutes.
Cost of a Long Commute
Let’s say the 45-minute commute is 30 miles. This means a round trip of 60 miles. If we conservatively assume that gas costs $2.00 per gallon and your vehicle gets 23 miles per gallon, you would be spending about $5.21 on gas every day that you are driving to work. This may not sound like much, but it is not an insignificant amount to dish out every day.
The 45-minute commute means you are driving for a total of 1.5 hours every day. If we assume your hourly rate is $25 per hour, then you would have an opportunity cost of $37.50 per day!
Total = 5.21 + 37.50 = 42.72 per day
Cost of a Short Commute
Let’s say the 10-minute commute is much shorter at 5 miles. This means a round trip of 10 miles. If we conservatively assume that gas costs $2.00 per gallon and your vehicle gets 23 miles per gallon, you would only be spending about $0.87 on gas every day that you are driving to work.
The 10-minute commute means you are driving for a total of 20 minutes every day. If we assume your hourly rate is $25 per hour, then you would have an opportunity cost of only $8.33 per day!
Total = 0.87 +8.33 = 9.20 per day
The Compounding Difference
This means that by shortening your commute from 45 minutes to 10 minutes you would be saving about $33.51 per day, or $167.59 per week, and $670.35 per month! If you look at the cost of your commute in this light, then you might be more willing to pay a little more to live closer to work. This works out to a savings of $8,044.28 per year. This is more than most people save for retirement every year and could be used to max out a Roth IRA and more.
It should be noted that all the numbers in this calculation were very conservative and the difference in commutes could be much greater with a less efficient vehicle or higher gas prices. Also, you could cut your gas price to zero if you managed to ride your bike to work or even take public transportation.
I think the reason so many people underestimate the cost of their commute is because they don’t value their time as much as they should. Valuing your time more than you value money is the driving force behind the financial independence movement and if you wish to achieve that independence you need to start being greedy with your time.