Is your car driving you to poverty?

Your car may be driving you to poverty. The pun here is very intentional. Everybody wants a new car. Everybody fantasizes about his or her dream car.  I also have a dream car that I intend to drive in my lifetime.  We cannot deny we have an emotional attachment to cars. We admire them from a far and determine that we shall have them. We feel good when we are driving a nice car. We notice around us how people react to them.  The special parking that the watchman gives the people with the nice looking cars as you are told to go park in some obscure spot where you may not even have wheels by the time you come out. They have become status symbols.  A sign that you are headed somewhere. Many of us aspire to have a certain car. There is nothing wrong with that. I was on a radio show yesterday talking about debt.  I had just described good debt as the kind that puts you in a better place.  Someone on my twitter handle asked if the car loan he wants gets him in a better car, whether that is good debt? No it is not.  You are in a more comfortable car but not a better place financially. But, I am not here to bash the car.  I have admitted that I also yearn for the same experiences as everybody else.  However we just have to analyse whether your car is driving you to poverty.  That’s where we do not want to end up.

Let’s start with the math. Many people decide what car they want and then go and find what is available and how much it will cost.  The car gets us from the time we decide which one we like. That’s what we start noticing it on the road and we figure out what we can do to be the person sitting at the wheel. A few have cash available to go buy it.  Many of us however will also look at our pay slip and if we think we can manage the monthly outflow we buy it.  Some of us know we can’t manage the monthly outflow.  There are other loans we have and we know we are always late on rent but we do it anyway hoping unspecified deals will start coming our way.  We even cheat ourselves that driving this particular car will open doors to promotions or certain people who will throw these deals our way. We are already mentally hooked even before we take control of the steering wheel. So a friend of mine, let’s call him Jeff has just upgraded from a Honda to a Subaru. He had paid for the Honda when he first got it in cash.  The Subaru, which cost him one and half million shillings, has been financed through a car loan. Monthly repayment is Kshs 40, 000. So in a year, Jeff is going to make Kshs 480, 000 in car repayments.  In addition to this he will spend Kshs 20, 000 in fuel.  That another Kshs 240, 0000 per month.  Insurance per year on his car is Kshs 80, 000. In a year he will spend approximately another Kshs 200, 000 on parts, repairs and servicing and incidentals (e.g. that parking spot I mentioned earlier).  That brings us to grand total of one million shillings.  This is only one year. In five years it will be five million shillings or more because as the car ages it is less fuel efficient, needs more parts replaced etc. At the end of that time the car will be worth Kshs 500, 000 so Jeff will have made a loss of four and a half million shillings. Some of you drive bigger cars than Jeff. Please make the necessary adjustments to your calculations. Jeff’s Honda used to cost him Kshs 300, 000 a year.

Now let me explain why I told Jeff, he couldn’t afford his car.  It has nothing to do with the fact that he could get and service the loan.  The car has left Jeff in a position where his ability to save and invest has been compromised.  That is Jeff is going to save less than what he spends on the car and that is why it has made him poorer.  With this new burden he cannot even match in real investments, the million his car is costing him. It’s like having a glass that is broken and leaking water. All cars leak money. They are an expense, even the small Honda he had. Would you buy a bigger glass that leaks more water or would you start accumulating glasses that doesn’t leak water?  When you have enough water you can indulge in the fancy ones that leak a bit.  But to get to that point you have to buy more of the ones that don’t leak. That’s not what Jeff is doing but he left our conversation having signed up for our personal finance classes. Investment and consumption can never compete.  Yes we will do both, but you honestly have to decide which one is going to be the Master. You have to decide to build with more effort the things that will enable you to drive that car sustainably. If you keep focusing on buying more expensive cars akin to fancier glasses that leak more water, you will reach a point where you cannot sustain that expenditure because all your money went there. All glasses leaking water eventually means no water.  You worked all those years for a car that has rewarded you with poverty.  So there is nothing wrong with the fact that you want a better car. There is nothing wrong with the car in itself, just make your decisions rationally, and decide who the master will be.

 Source: Centonomy –


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