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Is it Cheaper to Own a Car or Use a Taxi?

Updated on November 18, 2016

An Evil Necessity

Taxi Cabs of New York City
Taxi Cabs of New York City | Source

Transportation is a necessity. Without it, I cannot go to the store, go to work, visit friends, or go to the doctors when necessary. It's expensive but one of those evil necessities. The trouble is, I am challenged as to whether or not owning and maintaining a vehicle is the best option.

The "Good" Thing About "Bad" Times

The good thing about bad financial times is that after working through them, what you learn can be applied to setting a new course for financial victory. I have learned this the hard way on more than one occasion. My latest dilemma has forced me to do a little more math and make some course changes. For that, I am grateful.

The challenge I presented myself with is: should I keep my car or use a taxi instead?

To respond to my challenge, I had to figure out the cost of owning and running a car, and the cost of traveling by taxi.

I. Determining the Cost of Car Ownership

To determine the cost of owning a car, I needed to know exactly what those costs were. The variables for you may be different, but only by the dollar amount in each category.

I had to look at the contributing factors individually and then plug them into the formula. The formula gave me a “final” result that I used to compare to the cost of using a taxi instead.

Also, along the way, I discovered how to take off what I didn't need, which is something my mother taught me (see the end of the article). Hopefully, you will too.

A Five-Factor Formula for the Cost of Car Ownership

I looked at five factors individually. I used historic average cost derived from various organizations like AAA.com and Edmunds.com. Both sources have extensively researched the "true cost" of car ownership. I found that despite some minor differences, both companies agreed that the most important considerations include the following:

  1. Cost of the car
  2. Cost of maintenance, including inspection
  3. Cost of insurance
  4. Cost of taxes, license, and registration
  5. Number of miles traveled

I wanted to determine the true cost per mile of owning a car: The formula ended up looking like this:

((Cost of car / 5 years) + Cost of maintenance + Cost of insurance + Cost of taxes, etc.)

Divided by: Number of miles traveled

= True cost per mile of owning a car


1. Cost of the Car

The first two charts below show the national average cost of car types based on their life expectancy as of 2014. Used vehicles are assumed to be in good to excellent condition. For completing the formula I entered the Cost per Year for the factor. Both the new and used car life is based on the expected average life with proper maintenance, average mileage, and general use.

Yearly Cost of a Car

New Car
Average Cost
Projected Life in Years
Average Cost per Year
Luxury Car
$52,000
11.1
$4,685
Large Truck
$50,000
10.4
$4,808
Median Car
$28,000
9.5
$2,947
Median Truck
$30,000
9.0
$3,333
Economy Car
$15,000
8.1
$1,852
Economy Truck
$18,000
7.5
$2,400
 
 
 
 
 
 
 
 
Used Car
Average Cost
Projected Life in Years
Average Cost per Year
Luxury Car
$24,000
6.5
$3,692
Large Truck
$21,000
6.1
$3,443
Median Car
$14,500
5.8
$2,500
Median Truck
$16,000
5.2
$3,077
Economy Car
$6,900
4.4
$1,568
Economy Truck
$6,500
4.1
$1,585
Choose the average cost closest to your type and age of vehicle

2. Cost of Maintenance

The cost of yearly maintenance is a major factor that many times consumers do not properly account for. The maintenance calculations shown below consider the following items:

  1. General maintenance including tires, oil, filters, brakes, exhaust, suspension, drive train, wiper blades, and fluids.
  2. Inspection, including fees and associated labor cost
  3. Cosmetic maintenance including washing, waxing, and minor cosmetic repairs

It is important to note that travel conditions and environmental differences can greatly affect the calculations. However, the Average Yearly Cost typically is the most optimistic figure to use. As a rule, the first five years of ownership are the most economical and the last five years (normally the “used” market) will see a dramatic increase in maintenance cost.

Yearly Cost of Maintenance

Type
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Total
Avg Yearly
Luxury Car
$1,000
$1,600
$2,000
$2,400
$2,800
$9,800
$980
Large Truck
$1,000
$1,800
$2,200
$2,600
$3,000
$10,600
$1,060
Median Car
$1,000
$1,300
$1,700
$2,100
$2,500
$8,600
$860
Median Truck
$1,000
$1,500
$2,000
$2,500
$3,000
$10,000
$1,000
Economy Car
$1,000
$1,500
$3,000
$4,000
$5,000
$14,500
$1,450
Economy Truck
$1,000
$1,500
$3,000
$4,500
$6,000
$16,000
$1,600
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Type
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Total
Avg Yearly
Luxury Car
$3,050
$4,050
$5,050
$6,050
$7,050
$25,250
$2,525
Large Truck
$4,750
$5,750
$6,750
$7,750
$8,750
$33,750
$3,375
Median Car
$3,000
$3,750
$4,500
$5,250
$6,000
$22,500
$2,250
Median Truck
$3,800
$4,500
$5,200
$5,900
$6,600
$26,000
$2,600
Economy Car
$6,000
$6,500
$7,000
$7,500
$8,000
$35,000
$3,500
Economy Truck
$6,500
$6,575
$6,650
$6,725
$6,800
$33,250
$3,325
The average cost of yearly maintenance will depend on driving habits, location, and quality of the vehicle.

3. Cost of Insurance

Driving habits can directly impact insurance rates
Driving habits can directly impact insurance rates | Source

Insurance Rates

Monthly
Yearly
$50
$600
$75
$900
$100
$1,200
$125
$1,500
$150
$1,800
$175
$2,100
$200
$2,400
$225
$2,700
$250
$3,000
$300
$3,600

To own a car, you must also purchase insurance, unless you choose to drive illegally. The cost of maintaining an adequate amount of insurance depends on driving history, age, gender, make, model and year of vehicle, geological location, driving habits, and number of anticipated driving miles per year. The chart below will give a range in which you can pick your most likely value. Your insurance rate is a significant factor in determining your yearly cost and must be included in the formula. I personally pay my premium monthly, knowing I could save about 10% if I were to pay annually.

4. Taxes, Registration, and Other “Fees”

Again, like the previous considerations, this expense is variable and can range from about $100 to well over $1000 depending on circumstances. I add a default figure of $300 per year, which covers my registration and allows for a parking ticket (or two). Again, in keeping with my intent to take off costs I don't need, safe and cautious driving habits make a difference. I don't need the cost of a traffic violation.

5. Mileage and Gas

One of the biggest expenses and also one of the biggest areas to economize is mileage and fuel economy.

The biggest thing that affects your fuel bill is your mileage. Start by taking off what you don't need.

Ask yourself these questions:

  1. Do you need to make seven trips to the store each week? If you plan ahead you can consolidate your trips requires planning ahead.
  2. Do you need to go to the store for something you can order online that includes free shipping? I have found that I buy much of my essential items over the internet from places like Amazon, K-Mart, WalMart, etc. These all offer free shipping and the turn around time is very quick.
  3. Do you take advantage of gas discounts offered by many food stores these days? You are going to buy food anyways--I usually save at least fifty cents per gallon by doing this.

Save Money by Reducing Miles

High MPG
 
 
 
Median MPG
 
 
 
Low MPG
 
 
Miles/Week
MPG High
Yearly Cost
 
Miles/Week
MPG Med
Yearly Cost
 
Miles/Week
MPG Low
Yearly Cost
50
1.7
$303
 
50
2.8
$506
 
50
4.2
$758
100
3.3
$607
 
100
5.6
$1,011
 
100
8.3
$1,517
150
5.0
$910
 
150
8.3
$1,517
 
150
12.5
$2,275
200
6.7
$1,213
 
200
11.1
$2,022
 
200
16.7
$3,033
250
8.3
$1,517
 
250
13.9
$2,528
 
250
20.8
$3,792
300
10.0
$1,820
 
300
16.7
$3,033
 
300
25.0
$4,550
350
11.7
$2,123
 
350
19.4
$3,539
 
350
29.2
$5,308
400
13.3
$2,427
 
400
22.2
$4,044
 
400
33.3
$6,067
Edmunds TCO calculator includes everything that you should consider.  Simply put in your make model and year, the calculator does the rest.
Edmunds TCO calculator includes everything that you should consider. Simply put in your make model and year, the calculator does the rest.

The True Cost of My Car is $3.29 per mile

After doing the calculations as shown above, I was unpleasantly surprised. From time to time I use my vehicle for work, and the mileage allowance they give me there doesn't come anywhere close to what it is costing me. Lesson learned. No more using my car for work!

My end result: It cost me $3.29 per mile.

Now, with all of that being said, there is an easier way to arrive at your own personal true-cost-to-own dollar amount. I discovered this halfway through my investigation.

To find your True Cost To Own, I recommend using a good calculator designed for that very purpose. Comparing my own results against Edmond.com's True Cost to Own calculator ended up being nearly identical--they actually figured it cost me more than what I had figured.

To use their calculator, you simply input information about the year, make and model of your car. If you are shopping for a car, it will allow you to input several vehicles to do a side-by-side comparison.

Very accurate way to find your rate.  Automatically calculates cost, tips, options, and reviews of the taxi company you choose.
Very accurate way to find your rate. Automatically calculates cost, tips, options, and reviews of the taxi company you choose.

II. The Cost of Using Taxis

Don't Worry...this section is short and to the point. No charts or huge commentary needed.

The next step in comparing and answering the question: “Is It cheaper to own a car or use a taxi?” is knowing how much it would cost you to duplicate the miles you need to go on a weekly, monthly, or yearly basis. The only two factors you need to know, are A: Where are you?, and B: Where do you want to go?

At first, I did this the “hard” way…I called a local cab company and literally, took a trip. For comparison purposes, I did it again, this time calling another cab company and doing the exact same trip again. I quickly found out, it pays to shop around. In the end, one trip cost me $2.45 more. It probably didn't help that the second company didn't take me by the shortest, fastest route.

The price difference for the same trip got me doing a bit more research with an another amazing discovery. I found a free online service, Taxi Fare Finder, that not only gives an accurate cost for the trip you want to take, but also provides direct contact information and customer reviews. It also "remembers" me. It works sort of like Google Maps. With just a couple of clicks on the keyboard I was able to find a reliable cab company for an extremely good rate.

"My" regular taxicab driver has learned my schedule, has a great rapport, and has from time to time given me "free" trips simply because I have referred business her way from my friends. When I go food shopping, she jumps out and even helps me bring in the "goods."

Drum Roll Please...

Conclusion: The Winner Is...

At last, having calculated the cost of owning a vehicle, and having calculated how much it cost me to duplicate my mileage using a taxi, I was able to complete the task at hand.

My yearly cost of owning a vehicle: 5,500 miles per year @ $3.29 per mile = $18,095/year

My yearly cost of using a taxi: 5,500 miles per year @ $2.96 per mile = $16,280

The difference: $1,815 per year.

For me, the answer is “yes”. It may not sound like a big cost savings, but on the other hand, what this cost comparison has caused me to do has become even more valuable. I have taken some of my mother’s advice and “taken off what I don’t need.”

By using a taxi, I have planned where and when I want to go. Instead of running to the store every time I need just a couple of items, I either make do or plan better for the next time. Instead of going to the food store several times a week, I have now learned to consolidate my running and only go once a week, saving me an additional 25 miles or about an extra $75 per month, which is another $900/year.

I walk more and spend less. I now look at reducing the miles I travel as a means of saving and spending on things I would rather have … perhaps, a different environment altogether.

No Shoes, No Shirt...No Car...No Problem

On the other hand, an island that requires no shoes, no shirt, no car, no taxi....no problem!
On the other hand, an island that requires no shoes, no shirt, no car, no taxi....no problem! | Source

A short story: My Mother the Stripper

My mother once told me a story about when she was a child—then, I thought it was more of an attempt to humor me, which it did, but now, I see it was her way of trying to teach me a valuable lesson.

“Let’s play a game,” the neighborhood boys challenged her, “It’s easy, all you have to do is put this blanket over your head.”

Now my mother, back then, was a bit of a tomboy…her group of friends just happened to all be boys and felt she had to prove herself time after time to qualify as 'rough and tough' as they were. She was smarter then them and was able to hold her own in most of their challenges. This time, she once again came out victorious--but not without first experiencing some trepidation. She obliged and put the blanket over her head covering her self completely.

The ringleader of the group then shouted out to her as the other boys laughed, “Now, take ‘off’ one thing you don’t need”…and, she did: off came one of her shoes. The boys continued to laugh knowing that their “game” was working quite well. “Now, take off another thing.”

Off came another shoe, and then her gloves, and then her hat, and then, ...

At this point, inside the blanket, my mother began to understand the point of the game but still did not want to loose. She took inventory of her choices and realized she was down to a very few. She knew the obvious: another glove, two socks, and her scarf…but from there, the challenge would not be so likeable…at least to her. She thought hard…she did not want to loose.

Again, from outside her blanket, she heard the dreaded shout, “Take off what you don’t need”. This time the demand was in unison from all of the boys. She thought harder and then, smiled. She removed her socks, her scarf, and her other glove one by one and kicked them out from under the blanket. Finally, she wiggled out of her sweater with great antics, slid it out from under and then shouted out to the gleeful boys: “Okay, I will take off one more thing and then that’s it!”. The anticipation of the “moment” for the boys brought silence to the group as she removed one more thing…

The boys were delighted with the one more thing she removed...they won the game but so did she...

The final thing that she could “bare” to lose came off: She removed the blanket.

I will never forget that story; I just wish I would have learned its lesson sooner.

When I made my recent decision, I asked myself if owning a car or using a taxi amounted to "taking off what I don't need."

I personally love to ride in taxis. I love the conversations with the drivers, not having to find a parking space, not having to worry about accidents or tickets, etc.

But, perhaps using a taxi may not be the 'best' experience if this happens...

Care to take a ride in the taxi in the video below?

This Cab Ride May Change Your Mind

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    • Elliott Shifman profile image

      Elliott Shifman 2 years ago from Chicago, Illinois

      I think it's cheaper to own a car. You spend a quarter of the money for gas then you would for a taxi. The cost of having a car aren't that expensive yearly if you take car of the car. Also I would prefer having my own car anyway.

    • C.V.Rajan profile image

      Disillusioned 2 years ago from Kerala, India

      Interesting analysis!

      My father was extremely frugal and he will make his analysis like this virtually for every mode of expense!

      C.V.

    • Joel Diffendarfer profile image
      Author

      Joel Diffendarfer 2 years ago from Ft Collins, Colorado

      I've personally, switched to using all taxis...I save more than what I had first anticipated because of "stopping" all of the unnecessary trips buying unnecessary things...I tip well and have made some great cab driver friends. Eliminating what you don't need is half the battle. I am finding being "frugal" is very satisfying.

    • colorfulone profile image

      Susie Lehto 2 years ago from Minnesota

      Wow, you do like to break things down, this is great seeing the charts and figures. I do not own a car now, and need to rely on others for rides into town to pick up needed supplies. I can live without a vehicle, but there are times when going to the local country store would be nice to pick up some things.

    • profile image

      moebashir 4 weeks ago

      Great, you do like to break things down, this is well seeing the charts. I have not own a car now, and need to rely on others for rides into town to pick up needed supplies. I need not a car, but there are times when going to the local country store would be nice to pick up some things.

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