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Dont think of price, think of cost per use

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Re: Dont think of price, think of cost per use

#11

Post by dataflow »

nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

> the capital cost of the car amortized over the years of ownership

How many years will I own my car? How do you know?

Maybe some folks buy a new car on a regular basis, but others will keep a car as long as they can. The denominator isn't known for everyone here.

And then there's inflation, recession, etc. which can make the numerator unclear too.

Re: Dont think of price, think of cost per use

#12

Post by thaumasiotes »

nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

But people are well aware of the cost of carrying insurance and of buying a car in the first place. Those costs aren't incurred per-use; accounting for them per-use can only make car ownership look more attractive than otherwise, not less.

Re: Dont think of price, think of cost per use

#13

Post by AnimalMuppet »

dataflow wrote: post #11
nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

> the capital cost of the car amortized over the years of ownership How many years will I own my car? How do you know? Maybe some folks buy a new car on a regular basis, but others will keep a car as long as they can. The denominator isn't known for everyone here. And then there's inflation, recession, etc. which can make the numerator unclear too.

All true. But if you're one of the folks who regularly buys a new car, you kind of know that. If you're one who keeps a car as long as you can, you know that too. So you can make, not totally accurate calculations, but calculations that are enough within the ballpark to show you whether transit is an economically interesting alternative.

Re: Dont think of price, think of cost per use

#14

Post by JetAlone »

RyEgswuCsn wrote: post #5

It should really be "cost per meaningful use" or "cost per productive use". Being able to check your news feed on your phone 60 times a day probably doesn't confer as much utility as being able to check your friends' messages 10 times a day.

I don't see why you got downvoted, maybe by a resentful droog or two. This is a fantastic addendum.

Re: Dont think of price, think of cost per use

#16

Post by dsr_ »

nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

In most of the US, not having a car at all places you in a severe hardship. Public transit is usually underfunded or scarce. Daily life needs extra planning, effort, and time.

So a car may be purchased based on pure utility, or for uncommon but plausible capabilities, or for luxury or status.

Re: Dont think of price, think of cost per use

#17

Post by Brajeshwar »

I got the gist of the article with a quick speed-read. I have kinda used this unknowingly for a very long time. I have also helped a lot of people make buying decisions, especially when they find the upfront cost high.

My view is -- start from the cost of your use and buy it even if it is on the costlier side upfront. This is also akin to buying smaller number but of high quality item so they last longer and thus the life-time cost to usage is way beneficial than buying cheap that you need to repeat frequently.

Breaking down the cost down to the number of hours use per day, and thus if a Laptop lasts 3+ years, how much is the actual cost for each hour. Now, will it "spark joy" buying a better but costlier Laptop that will last years.

Re: Dont think of price, think of cost per use

#18

Post by jeffwilcox »

Agree, to a point. This was how I justified purchasing a relatively nice stereo setup 13 years ago.

Today, I look at the math, on a cost-per-day or cost-per-use angle, and I'm so happy that I went for something nice that I enjoy.

I do feel like cost-per-day amortized is probably more interesting for a lot of decision making.

We probably over-estimate how often we'll use a product or service.

Re: Dont think of price, think of cost per use

#19

Post by formerkrogemp »

dataflow wrote: post #11
nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

> the capital cost of the car amortized over the years of ownership How many years will I own my car? How do you know? Maybe some folks buy a new car on a regular basis, but others will keep a car as long as they can. The denominator isn't known for everyone here. And then there's inflation, recession, etc. which can make the numerator unclear too.

Nah, we start with market value when new, a representative rate or method of depreciation, and a residual value. You can take a straight line of depreciation, double declining, etc. Residual value is usually a ballpark figure with the actual closing disposal value representing a loss or gain upon disposal. You're overcomplicating it taking in too many parameters to be a useful rule of thumb or guideline for those concerned with the numbers. As you're pointing out however, the relevant parameters do vary from person to person. Anywho, personal finance isn't really bookkeeping for a business.

Re: Dont think of price, think of cost per use

#20

Post by dataflow »

AnimalMuppet wrote: post #13
dataflow wrote: post #11

Earlier quoted context omitted.

> the capital cost of the car amortized over the years of ownership How many years will I own my car? How do you know? Maybe some folks buy a new car on a regular basis, but others will keep a car as long as they can. The denominator isn't known for everyone here. And then there's inflation, recession, etc. which can make the numerator unclear too.

All true. But if you're one of the folks who regularly buys a new car, you kind of know that. If you're one who keeps a car as long as you can, you know that too. So you can make, not totally accurate calculations, but calculations that are enough within the ballpark to show you whether transit is an economically interesting alternative.

How accurate is "enough within the ballpark" though? This isn't something where an order-of-magnitude estimate or even a factor of (say) 2 error is negligible. Can you really predict the future to within like 10% accuracy? How accurate do you think you need to be?

Let's do something resembling reality. Say your subway transportation costs around $13/weekday. (I just looked up a random round-trip BART ticket for the Bay Area, in case that makes it easier for people here to relate.) Probably more like $20/weekday if you add bus and parking.

Now say the drive for that is around 30mi. At $4/gal gas (pre-2022) and 30 mi/gal the driving cost might cost you $4/day just for gas (probably optimistic). Say you buy a $35k car and plan to keep it 8 years, then sell it for $5k. That'd cost you roughly $14.50/weekday in depreciation. Add that to the gas price and it's around $19.50/day.

I haven't even accounted for maintenance yet (on the car side), nor for non-work rides (on the public transportation side), but so now you have ~$20/day vs. ~$20/day. How in the world do you decide?

Now consider gas prices shot up > 50% in a year. And we have a recession coming and you might lose your job (less gas usage, I guess?) and so decide to keep your car longer. And we have inflation. And your car might get totaled in between... or not. And you might have random stuff come up that increase costs on each side... or not. Exactly how do you do the math here to figure out which one is more beneficial?!

I'm not saying you can't do the math, but as I see it, every factor adds in such a huge margin of error into both the numerator and the denominator that the result of the computation easily becomes pretty useless. And this is before even accounting for convenience/QoL improvements that you can't put into numbers... what's the value of being able to get your kids their favorite meal, or show your friends around town, or...

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