Lesson From A Car Loan
I paid of my car loan last week, and what a great feeling it was. No more writing cheques to the bank every month. Cars are expensive where I live. It is due to the way the tax structure is set up here. Since I had to get a release letter from the same branch I got the loan from, I went back there and it brought back memories. Flashback of sorts.
I thought back to the time I went to apply for a loan what I learned from this car loan. Some 4 years ago, I remembered signing the loan documents. It took more than 2 weeks to get the loan approved and other documents of ownership to be transferred. Eagerly I waited till the day I got the keys. Although it was only a used car, it was almost new. Only 18 months old at that time.
It was quite an upgrade for me at that time. From driving a much cheaper, not so well made car to this one. At that time, my income was on the increase, things are going well, so I figure owning a car that cost a little less than 3 quarters of my yearly income, is well within my budget.
So, finally I gotten the car, thoroughly enjoyed it, and off course started paying the loan monthly. Along the way, things change. Perhaps it was writing all those cheques every month.
My thoughts regarding how money was spent also started to change. Over four years, I begin to realize missed opportunities for investing. For the monthly payment I was making for the car loan, I could have bought a property and rented it out instead. I could have rented it out at a slight loss and still gotten out ahead just by waiting for it to appreciate in value. Well, Kuala Lumpur is a growing city and property prices keep climbing.
I felt, the change in thinking is partly due to the fact age is catching up. Rites of passage some might say. I also came to the realization some 2 years ago, that just working hard to increase income does not cut it for me anymore. How much harder does a man need to strive.
Along the way, the Missus decided to leave employment and tried her hand at business. We still could manage on 1 income for a year before her side of the business started to bring in income. As a couple we choose to live below our means. That helped a lot. What we cut back on was overseas trip to more expensive locations. We still traveled, but to places where the currency is in our favor.
I’m not sure if everyone needs to go through something like this to really wake them up. Reading several personal finance blogs, I found that many people have to go through some pretty bad times in order to turn around their finances. In this sense, I am pretty lucky. Never in over my heads.
In summary, these are the lesson I learned from taking a car loan:-
- Situations change, make allowance for such changes
- It is far better to buy something that increases in value that things that depreciate
- Make hay while the sun shines - grab the opportunities when its there.
By the way, I enjoyed using the car I bought and am still enjoying it. It is a slightly boring, decent family car with low maintenance cost.
So, what am I doing with the extra cash now? I thinking hard on this one. With the current economic situation, making this decision is a bit hard. There are 2 options. One is to pay down our current house loan, which is the safe option. The second option is to purchase a investment property, which logically is the sound choice. Time to go property hunting.
7 comments
Great post and I’m glad you learned some money lessons from this experience.
I recommend taking that car payment and creating an emergency fund of 3-6 months of your monthly expenses. Put it into a good savings account that you can access easily without penalty. Do Not Invest this money. It isn’t an investment. It’s insurance against emergencies.
Next, take some money and start saving cash for your next car, and don’t ever borrow money again to buy a vehicle.
If you have any other debts besides your house, pay them off as fast as you can and never borrow money again. The math may make sense, but not when you include the risk of having debt.
After that, start saving 15% of each of your incomes for retirement.
Then work on paying off your home mortgage.
When your home is paid off, invest for wealth.
I recommend the book “The Total Money Makeover” by Dave Ramsey. It will help you get on track from here and stay on track to a life of wealth and abundance.
Best of luck in your money future. If you read my blog, you will know I’m doing all this the hard way.
Sherri
Hi James,
Thanks for sharing the great lessons. I always believe in spending my money for something which increase in its value.
Sherri - thanks for the suggestion. We do have an emergency fund. Good debt for investment might not be bad actually. Together with an exit strategy, it can leverage the money. Having said that, I’ve never had the experienced of being burnt so this is theory for me.
Raymond - well there are stuff that “don’t” increase in value but we still need to spend it, like a reliable, low cost and safe enough car for transportation. But off course reliable, low cost and safe is relative to each individual.
Personally I don’t think we should go on either extreme.
In the state where I live, we had growth for years and years, and people with union jobs bought expensive houses that they ultimately couldn’t afford when the economy took a downturn. We’re now the worst economy in the US, and people are losing their houses in frightening numbers. It’s sad, really. In the very small town where I live, there’s a house for sale on almost every block. Larger towns are very hard hit as well. The people losing their homes took a gamble and lost big.
To me, debt isn’t worth the hassle or the risk. Figure out for a minute how much money you paid in interest over the life of your car loan. If it’s anything like a US car loan, you paid half the value of the car again in interest, or perhaps even more.
Thanks AmyL for your thoughts. I’d definately take it into consideration. What I was thinking when I say “borrow to invest” is to invest in lower end house or apartments. Even if the economy takes a downturn, I’d probably still can rent it out, i.e. those who stay higher end property might need to move to lower end property when it happens. So I should be “safe”. Like I said, its all theory for me.
However, if we did LOSE our source of income altogether, than that would put us in a hole.
Nope, I did’t pay that much for interest in the car loan. Worked that out before I took the loan. I also got some tax deductions since the car is used partly for business. But I did lose out on the opportunity to invest because property prices when up a lot these last few years.
Congratulations on your car loan being paid off!! I remember paying off our truck and car and feeling the same feeling of accomplishment. We paid off our cars a bit early and that felt even better. I am doing your first option, putting all that extra money into our home payment.
I also started my own side business and it helps to have extra money to make it grow.
We are expecting to pay our home loan in 10 years!!!!!
Well done Francisco. With a income from a side business, you might even finish your home loan in less than 10 years.
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