A car is probably the second-most expensive thing you will buy after a home. But unlike most big-ticket purchases that yield high appreciation value every year (like diamonds and gold), a car automatically loses about 20 percent of its value the minute it rolls out of the dealership.
So why pay for something big which, at the onset, will just make you lose money? Well, because driving your own car offers freedom and convenience, and we still don’t have a safe and dependable public transportation system. Moreover, to many of us—especially men—having a car is a status symbol, a sign of independence (Remember the first time when we finally drove our own car?).
So how can you make this losing situation a winning one? Here are some ideas in convincing your spouse, partner, parents or yourself to make a purchase:
Find an investment that will pay off the expense. I am a big fan of Robert Kiyosaki, author of the “Rich Dad Poor Dad” books. In his “Cashflow Quadrant” and “Guide to Becoming Rich,” Robert told the story of how he makes intelligent investments and not scrimping on oneself. He talked about his and his wife’s love for luxury cars. So when he found the sports car of his dreams, he just had to have it. But instead of paying cash straight such that it just becomes an expense, he discussed the concept of finding an investment that will pay off the expense.
Sounds the same to you entrepreneur guys? Well, actually it’s not. You see, for the amount of money that you will spend on the car at a loss, it will be invested into something else that will yield you the same amount of money and more. Let’s say you will be spending P3 million on a car. Instead of going straight to the dealership, you go and look for a possible business or real estate with the same amount or a bit more. You buy a studio or warehouse and rent it out for P50,000 a month. Now you can finance your car at P40,000 a month; you are left with P10,000 profit plus a property that will continue to generate money even when you let go of your ride. Yes, you will have to wait a bit, but rewards always come to those who wait.
Be smart about your car modification. Some modifications or personalization can lead to a smaller market, resulting in selling at a loss. Repainting usually lessens the value of a car, which is why “foiling” is such a big thing nowadays. Putting on mags and other modification can help you close the deal, but it will not add value to the car unless the buyer has the same taste as you do.
Weigh in on the brand-new/used-car scheme. Some people will advise you to purchase a second-hand car because the largest depreciation on vehicles is the first change of ownership. This might be applicable for cars that have low resale value. But for cars that have a high resale value, the price difference between a brand-new vehicle and a used one might be so little that you will be better off opting for the brand-new. Try to find out the cost of money, the amount of money that you will pay up front, and what other endeavors you can take with it. Will it create the same amount of money to pay for your car through financing plus more?
Try leasing. There are new Bureau of Internal Revenue guidelines that put a cap on how much an executive can spend on a vehicle by using the financial statement as basis. This has become a problem with big corporations that have incentives on cars as a way to lure employees. For us entrepreneurs, vehicles are one of the biggest purchases that will be reflected in our assets column, which is also a handicap.
Because of these, car leasing has been introduced by the big car companies. Through leasing, you can have a relatively small exposure in terms of cash. But the claim to fame of this would always be the worry-free use of the newest vehicles. Although you walk away with no capital gains, you will need to factor in the savings you will get when you don’t have to shell out for other car ownership requirements such as repairs, insurance, etc. What is important is that with leasing a vehicle is getting a Guaranteed Auto Protection insurance (if it’s not included in your lease package) so you also get covered with whatever deductibles or expenses that you personally might incur when something happens to the vehicle under your lease.
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