A Car is Not an Asset But a Bike Is

Surprisingly parked right in front of the police station

As long as I’m making a contrarian stand, I might as well toss out there that a house most likely isn’t an asset, either, but that’s a topic for another day. An “asset” is an economic resource, something valuable that produces income. If a thing generates expenses, then it is not an asset, it is a liability. The concept that a car may actually be costing someone money, that it might not qualify as an asset, is something that can really be upsetting. Let’s explore it, though. At the end of the thought experiment, anyone who owns a car will still own it, and nothing has changed except for a bit of a brain workout. Let’s go. Why is a car not an asset?

1. If you owe money on your car loan, your car represents debt.
2. It’s possible to owe money on a loan for a car that is totaled, that you can’t drive and maybe don’t even own anymore.
3. A car generates expenses, including the loan, insurance, gas, maintenance, parking, new tires, new parts, bridge tolls, parking tickets, speeding tickets, car wash, towing, ferries, accessories, and any other expenses associated with that vehicle.
4. A new car depreciates the moment it leaves the lot. Why is it supposedly so much less valuable after it has been driven for one mile?
5. Driving exposes the driver and any passengers to certain predictable risks, from traffic collisions to carjacking to road rage.
6. Driving determines a great deal about a car owner’s lifestyle, from posture to fast food consumption to overall fitness.

When I owned a car, I was utterly shocked to realize that it was costing me a quarter of my net income. A friend of mine who drives a low-mileage pickup truck disputed my figures. Look, I’m sorry, but I didn’t have a very high income at the time. Almost everything I earned went to the three categories of rent for my cruddy apartment, my car, and my student loans. There are probably a lot of people in my situation, who have never thought about how much it costs to have a car in their life but who could technically be getting to work by other means.

Note: Driving your car to your workplace to earn an income does not make the car an asset. The job is the asset.

There are only three ways that a car could ultimately be an asset, which I would define as bringing in more money than it costs. That would have to be more than a break-even rate, too. I imagine a car could be an asset if it 1. Earned its own income, such as a classic car being used in commercials, but does this even happen? Would that income actually exceed the total cost of the car, including purchase price and lifetime carrying costs? 2. Sold for far more than its original purchase price plus lifetime carrying costs, but does this ever happen, either? Like a, um, what do you call them, a Maybach or something? 3. Enables the owner to earn more money than could be earned through other means. I don’t think this is true of 80% of ride-share drivers, for instance, because it looks like most of them aren’t calculating externalities such as depreciation of their vehicle. They also aren’t paying themselves for the time they spend waiting or driving the unpaid legs of their trips.

The reason most people think of their vehicles as assets is that the thought of trying to get through life without one just seems hopeless or extremely annoying. Never put people in a position where they feel that they are going to lose something or have something taken from them. It’s the same with personal finance or fitness - people feel that “giving up” an inefficient habit is not worth the gain of being debt-free or more agile. It’s hard for us as humans to realize that letting go of one thing can be a significant upgrade, a tradeoff for something better.

I claimed that a car is not an asset, because it depreciates in value and because it incurs significant carrying costs. I also claimed that a bicycle is an asset. Let me back that up.

When I was 22, I got a windfall at my $9/hour job, a retroactive pay increase of $400. I sat on that money for about two months as I decided what to do with it. Then a sale came up at a local bicycle warehouse. I bought the new bike that I still own 20 years later. I had been paying between $30-$35/month for a bus pass, and I wanted to cut that expense from my budget. At just $30/month, the cost of the bike would be fully amortized in 13 months. That bike was my main source of transportation for the next three years, and sporadically in the following years, depending on where I was living. My bike became an asset because it allowed me to save money I had previously been spending.

There are other reasons why I regarded my bike as an asset:

1. Saved at least $30/month that I had been spending
2. Saved time I had spent waiting for the city bus - as much as an hour a day
3. Safer than standing around on city street corners after dark
4. Significantly improved my physical fitness
5. Possibly cured my thyroid disease

At that time in my life, on $9/hour, I could not afford to own a car. I wouldn’t have dreamed of paying to join a gym. My bike, which paid for itself, was a major life upgrade. I felt stronger and safer, and I had more time and slightly more discretionary income.

After I originally sold my car in - I think it was 2007? - I got my old bike tuned up and started riding it around again. I paid off my credit card balances. I paid off one of my student loans six years early. I bought a new couch. Then I went on vacation to Cancun. I’ve remained free of consumer debt for over a decade now, and I’ve gone on yet more vacations, just longer, more often, to more interesting places, in much nicer hotels. Car ownership was draining a quarter of my income, and after I eliminated that expense, I was finally able to start saving for retirement in earnest.

I got married in 2009, paying for my share of our wedding in cash, and we both drove my husband’s pickup until it died a little after 200,000 miles. We switched to a sedan and got a great rate on the loan, because my credit score is over 800. It was still a loan, though. We sold it back to the dealership after the big emissions scandal, and due to that weird situation, we essentially drove it for two years for just the cost of the gas. The improvement in our cash flow since we’ve been car-free has meant an escalation in our retirement planning. We save and invest 35% of our income, a number we couldn’t pull off while our practical, economy car was bleeding off $700/month in total costs.

I got my old bike tuned up again. My hubby and I have started riding around and exploring our neighborhood together. It feels like we’re dating. More than that, it feels like we’re on a date on a vacation! There’s just something indisputably romantic about riding bikes on a bike path together. I can’t say I ever felt that way when we were spending our weekends driving through freeway traffic to go to the warehouse store. I know neither of us ever felt that way when we were commuting in freeway traffic to get to work. Riding our bikes is helping us to save thousands of dollars for our retirement, stay fit and mobile as we get older, avoid the worst annoyances of standard commuting, and even feel more connected and affectionate with each other. For all these reasons, I continue to claim that a car is not an asset but a bicycle is.