Thanks for dropping by Safe Investing South Africa. I am on a journey to build wealth my way. For any questions or comments, feel free to contact me.

26 Jul 2012

A Car is Not an Investment

A Car is Not an Investment
We all know that a car is NOT an investment right! But why do we continue to treat it like one? I am learning to unlearn all I learnt about car ownership in the past. We were a one car family for a very long time. And most of my friends were bugging me about not owning my own wheels. Being in South Africa where everyone owns or at least wishes to own a car, and all. I wonder why friends never ask if I'm investing for retirement for a change. That would be a better concern.

Oh well, I managed to buy myself a car 5 years ago. I did so much research. I knew that I don't want a new car, I don't want a car that has covered a lot of mileage, I don't want a very old car. Most importantly, I didn't want a car INSTALLMENT. And all my wishes came true. There I was at the dealership of choice, picking and choosing. I ended up with a 1.8 litre car, 5000km mileage, same year model, and parted with R170,000. And I negotiated it down from R175,000. It gives me goosebumps just thinking about it. I was very proud of myself. Sacrifice does pay off.

Lets look at the figures. Based on the high interest rates at the time I would have paid just below R5000 per month over 5 years and just above R255,000 total payment over 5 years. Typing it alone sends chills down my spine. And indeed after 5 years I had an itch to buy another car. There's a whisper in my ear that says, "your car will start giving you problems". There was that whisper until I read an article about the guy who drove his car for 16 years. His car was bought used. I brushed the edge to splash on another car immediately. I guess I can keep pushing for another 5 years. This guy understood that a car is NOT an investment and focused on things that matter. In year 13, his car started giving problems. He fixed it for R7000 or so and continues with the ride. I know you think its too much, but he rightly justifies the cost by his lack of an installment. He just put aside R7000 per year for similar repairs going forward, saving the equivalent of the installment for another car. The most that he paid in repairs in the last 3 years of his car's life was R2800 per year. By the year 16 he bought himself another car, CASH, using the car fund that he opened for such.

Now back to me. This is my 5 years of driving my car, and my first year doing so without the warranty. That used to scare me. What is stopping me from starting a car fund, saving the R5000 - R7000 that I would pay for a car installment in that fund. I refuse to spend more than that on a car installment by the way. I can even invest that car fund whilst learning online investing. And since its a longer term project, I would reinvest all my dividends and do what is termed drip investing. It would be interesting to watch the money piling. YES, I am that positive. And I suspect that with a mileage of just above 100000km, I will have a great 5 years and another 100000km. Paying for service will be a pain, but a better pain compared to a car installment. I think.

How do you finance your cars? Do you save for a high deposit to reduce the monthly installment? Do you buy an older car for cash? Do you just do without a car, PERIOD?

0 comments:

Post a comment