JOHANNESBURG – If you ever attend an investment briefing and see a profusely perspiring woman with slightly overdeveloped upper arm muscles standing in the corner, don’t be alarmed.
You have not just witnessed the first case of bicep hyperhidrosis ever documented.
The woman in the corner is me, Ingé. Nice to meet you. (No need to shake my hand, I understand.)
While I’m usually all for taking responsibility, pro-accountability and the like, in this case I’m unashamedly going to shift the blame for the slightly awkward situation you have just witnessed to someone else. This time it really is all Goldie’s fault.
Although she is incredibly reliable, proudly South African and worth her weight in gold, Goldie – my 12-year old Toyota – doesn’t have power steering or an air conditioner.
Buying a car
In a previous life, I wrote quite extensively on the automotive sector. And almost on a weekly basis, the petrol heads of the industry wanted to know when I was going to buy a new car. When I can sell her at a profit, I quipped dryly. I could never quite figure out what these people were on about. Goldie gets me from point A to B, has never given me a single problem and with impressive performance figures of 55 kW and 103 Nm, I am (almost) certainly never going to be fined for speeding.
To my mind, the quickest and easiest way to improve your financial situation is to rethink your approach to car buying. The absence of a monthly instalment – or even just taking on a more reasonable payment – can go a long way in making a difference to one’s budget and finances in the long run. In the current economic climate, it is really difficult to find a few bucks to reduce debt or to save and invest each month. Buying down (or postponing a purchase) can offer just such an opportunity.
Cash is king
In fact, I think it may be worthwhile to consider buying a car in cash. The interest saving on a cash purchase is usually sizeable enough to warrant some deliberation, but more importantly, buying cash forces you to keep your own greed in check. Think about it: You may be able to fork out the R7 700-odd monthly instalment required on a purchase of R350 000, but would you still be able (or willing) to pay R350 000 if you had to pay it in cash? A cash purchase will most likely force you to postpone the purchase and “buy down”, which – if you choose wisely – will also result in cheaper parts, services and insurance.
While I feel quite strongly about the cash purchase issue, I do realise that most readers will think I’m a complete lunatic (if we have to resort to name calling, I’d prefer it if we could stick to the “entirely bonkers” reference from Alice in Wonderland, but what the heck – I’ve been given the “you’re weird” glare on this matter so many times, use whatever term strikes your fancy).
So as a compromise, an actuary friend suggested the following:
Determine how much money your budget allows you to spend on a new car. Let’s assume it is R350 000. Financed over five years, at an interest rate of 11.5%, the monthly instalment would equate to roughly R7 700. Now, let’s buy down and spend 15% less on the vehicle than you can afford – R297 500. This would bring the instalment down to roughly R6 500. (Not to worry, social status burials are not nearly as expensive as one might think!)
If you bought the less expensive car, but continued to pay an instalment of R7 700 towards the loan, the finance period would reduce to four years. If you drove the car for six years and continued to save the R7 700 each month for the next two years, you would have a sizeable (roughly R196 000) deposit for your next car purchase. Repeat the process and you’d be able to pay for car three in cash! The model assumes that car prices increase by 7% annually. Savings accrue interest at 6% per annum. (If you’d like to play around with the assumptions, you can download the Excel file here.)
Regardless of Goldie’s limitations, I am still in no hurry to buy a new car, although I must admit that an “upgrade” – whenever it comes – will most certainly include a few “extras”.
In the meantime however, I am seriously starting to wonder whether the lack of power steering and air conditioner may not be better security measures than an alarm and an immobiliser. After driving around the streets of Jozi for quite some time without a single break-in attempt, I can only come to the conclusion that even thieves are trying to keep up with the Joneses these days.