Cutting commuting costs can be the road to financial freedom

Cutting commuting costs can be the road to financial freedom

Perth roads are at a gridlock, with commuters spending hours stuck in traffic on the city’s freeways, highways and streets during peak hour, every single working day.

We tend to think about the daily commute in terms of the time it takes — but a series of recent reports show the true cost of getting to work from Perth’s far-flung suburbs and back again each day is a major hit to commuters’ back pockets.

The costs of commuting in Perth

Local think tank The Committee for Perth recently studied the costs of car ownership in WA and found the cost of driving to work every day could be more than $20,000 a year.

Committee chief executive officer Marion Fulker told ABC Radio that even someone living within five kilometres of the CBD would spend an average of $9758 a year on commuting costs if they drive to work.

‘For people in Joondalup, one of our fast-growing northern suburbs, 25 kilometres from the city, it is costing $16,102 a year, according to our research’, Fulker told the broadcaster.

‘People can be spending up to $1900 a month on parking, petrol, registration, insurance and maintenance. That is just slightly lower than the average monthly mortgage repayment of $2000.

‘Eighty-four per cent of us are using the car to get to work, so it affects most of us in the community. What we really need to do is see more people use public transport’.

The Australasian Railway Association has since released yet more research showing the cost savings of using public transport. It showed that an individual who forgoes their car completely and is required to travel a 50km round trip (the equivalent of a return journey from the CBD to Joondalup) could save $10,905 a year for a large vehicle and $5,457 for a small vehicle by using public transport.

What commuters could do with those savings

The travel costs associated with living in the suburbs are extraordinarily high. Consider what commuters could do with that money instead. If they put that additional $10,905 a year into a $600,000 home loan (with a 5.3 per cent per annum standard variable rate) they could increase their mortgage repayments by $900 a month. They could therefore reduce the term of their loan from 30 years to 19 years and save $246,252 over the life of the loan.

There are alternatives, too. These benefits towards savings can also be increased further by moving closer to the CBD and buying an apartment. By moving from Butler (45km from the CBD) and purchasing an apartment within 5km of the CBD, commuters are still able to travel to work by car and save around $3,151 a year for a small car and $3,536 a year for a large car. The extra savings could be used to take five years off a 30-year, $600,000 home loan and saves them $115,520.

If a person lives in Karnup (55km to CBD) and is willing to leave their large car at home and travel to work by public transport, they are able to save $4726 a year. That equates to taking six years off a $600,000 loan and saves them $137,952 in total. This is not small beer savings. This could be a life-changing decision.

If you work in the CBD, move closer for financial freedom

By moving into an apartment closer to the CBD, homeowners have the option to forgo a car completely and walk to work or use buses, trains or ferries. If someone moved the 40km from Kwinana to within 5km of the CBD, they could save $7536 a year for a small car or $13,310 a year for a large car. That’s a savings equivalent to reducing a $600,000 loan by 12 years for a large car or nine years for a small car, and a savings of $267,048 or $203,618 over the life of the loan.