Looks like some of the cash I discussed yesterday will go towards buying a car. We've been debating how much needs to be spent on a car. We don't need it for commuting at the moment as we live within walking distance of Snork Maiden's office. So it would be mostly used for shopping and "leisure" trips. Grocery shopping could be done more cost effectively using taxis if we don't want to carry the stuff as there is a taxi rank a block from the main food stores in the City and we live less than a kilometre from there anyway. But buying a car does seem to be inevitable. Given we don't need it for commuting, Moom thinks the car does not need to be extremely reliable. On the other hand it shouldn't be so decrepit that we are always spending money on fixing it. Snork Maiden would like a car that is newer than her previous one so we could keep it several years. What is the optimal amount of money to spend on a car? The car is likely to be something like a Toyota Corolla or Mitsubishi Lancer. The question is how old a model to buy. Then there is the question of whether to pay cash or finance it. I don't yet know what interest rates are available for buying used cars here in Aus.
I think I will treat a car as pure consumption and not include it in net worth. Financing may not make the most financial sense unless the rate is ultra-low but would make the dollar hit psychologically easier to take by spreading it out over time.
I don't think I mentioned that we don't have any phone service here for the last day and a half. Snork Maiden phoned the phone company (the ubiqitous TRANSACT) from work and they told her it was our phone, no problem with the line. So she brought her work phone home and it didn't work either... I'm less and less impressed with these guys.
10 comments:
A car is a capital expense. Normally it should be added to net worth and depreciated every year like any other asset.
As for the phone; only one phone company? We even have two here in monopolistic Israel!
A car is a consumer durable it doesn't produce any income except very implicitly in terms of saving other transportation expenses and it depreciates. A house on the other hand quite clearly saves you rent that you must pay to live somewhere, so the implicit income is a bit more tangible and land tends to appreciate though structures generally depreciate. So it's a bit clearer that a house belongs in net worth. Despite this some PF Bloggers don't include it. Anyway, in no way would anyone consider a car an investment when it is debateable if an owner occupied house even is.
Whether I include the car or not might rather unscientifically depend on how it is financed.
We could use Telstra and possibly other phone companies. Using TRANSACT allows us to bundle phone, internet, electric etc. together and apparently save money.
I don't bother including our cars and household items in NW calculations either. Aside from being a pain to work out realistic values for them they tend to depreciate to zero value fairly fast. Anyhow, the % error in our NW figures won't be large either way.
Apparently used cars tend to be best value when they are about 2-3 years old. They've already suffered the worst of their depreciation and haven't been worn out yet. Look for one in good condition with one owner and log books, and that has been garaged and only used for daily commutes (and not a lot of business travel) - say max 20,000 km pa travel. If you plot the redbook values for whatever make and model you have in mind you can clearly see how much depreciation occurs each year. This will also let you know how much you should offer. Best value is usually buying privately rather than via a dealer.
Best car loan rates would probably be via a credit union (they come under the category of secured personal loans). My credit union has a limited time promotional rate on car loans at the moment - 8.6%. The normal car loan rate from them is 10.4%.
Even if the rate appears the same, the downside with using the car financing available through car dealers is that often if you want to pay off the loan early you end up still having to pay the balance of the interest due until the loans term expires.
10.4% non-tax deductible makes no kind of sense as an interest rate unless one was going to use the money in trading. But realistically I'm not going to add money to my trading account in the short-run. If those are the kinds of rates we're looking at then it makes sense to buy a car for cash. In the US there are supposedly a lot of very low rates though those re probably mostly for new cars?
My understanding is that there is a good supply of used Japanese cars (cars that have been used in Japan, that is) in Oz. Apparently the inspections required of cars older then three years in Japan are very expensive, so that it is cheaper to replace them. Then the used cars are sold to other countries that drive on the wrong side of the road, even though they are quite low mileage.
I'd heard this was the case in NZ but that Australia banned import of these used cars (due to local car manufacturing industry). But I could be wrong or this could have changed.
If you are looking for a used car in Canberra I'd give serious consideration to the auctions of ex-fleet cars (eg pickles auctions - google should find them for you). 2-3 year old cars with good service records.
Buying cars is not that easy nowadays, I mean with the financial turmoil and the past fuel prices increase problems, and most of all pollution. I am glad that there has been lots of new technologies nowadays for cars that can produce less pollution yet offer more mileage though they are more expensive than regular cars.
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