“If you’re thinking about buying a car, let me give you a new idea — don’t.” That simple bit of advice is from Shark Tank’s Kevin O’Leary, a Canadian venture capitalist. It’s a money-saving trick that helps this millionaire to save and to generate more passive income with investing.
If you live in a city, owning a car is almost unnecessary. There are plenty of public transportation and ride-share service options available. (Okay, maybe not the bus; we agree that local bus schedules are unpredictable.) The LRT, MRT, short-term car rentals, and carpooling are all great too. Plus, there’s the My30 initiative that offers unlimited travel within the Klang Valley via LRT, MRT, KL Monorail and Rapid, all for just RM30 per month. What a bargain! Add to this the pandemic-related restrictions, which has pretty much made working from home the new normal, maybe you don’t need any further convincing to ditch the car.
Most people desire a car that costs close to RM100,000 or more. The monthly repayments for that if you stretch the car loan for nine years is about RM1,200 per month. It’s half of that if you buy a RM50,000 car.
If you think you can get away with setting aside only RM500 a month towards paying for a car, you’re wrong. The costs will certainly add up when you consider insurance, road tax, petrol, parking, highway tolls, maintenance, and an emergency allocation for unforeseen situations such as a flat tire, engine malfunctions, or minor accidents. That initial RM500 could easily add up to RM1,000 per month or probably more.
Besides, there’s also a time cost from owning a car. For example, maintaining and cleaning your car both need a lot of time. Don’t you just hate it when you have to wait what seems like an eternity at the workshop while the car is being worked on? So it’s also important to consider your time that you will have to spend if you want to be a car owner. (In fact, it’s technically the bank’s too, as long as you haven’t paid off the loan in full.)
Granted, if you Grabbed it, the maintenance and ownership costs are also baked into the fare, but think of the potential if you convert the monthly RM1,000 or more you spend on ownership costs into the costs of ride-shares. That’s a lot of rides, which you can surely game some savings on.
Cars cost a fortune. There are no two ways about it. Not many think long-term enough about car depreciation as an annual expense. How quickly will your car depreciate? The instant you drive it off the showroom, it loses 10% of its value! In just one year, a car can depreciate by more than 20%! By the end of five years, you’re looking at depreciation eating up about 40% of your cost. And if what we believe that nobody wants to keep the same car for more than five years is true, then the vicious cycle starts over again: for every RM100,000 spent buying a new car, you’re losing RM40,000 every five years.
There are a few ways to look at this from an investing perspective. Firstly, the RM10,000 that you’re putting down: that grows to about RM14,000 in five years or RM22,000 in 10 years at 8% returns a year. That’s very different from losing all RM10,000 if you bought a car. Secondly, just like how you could save and invest a lot of money if you rented property instead of owning, you could invest the savings between the notional RM1,000 monthly ownership cost and your ride-share costs.
The asset accumulation from investing the notional downpayment and monthly savings could come up to quite a lot, and could possibly be enough to finance a retirement lifestyle for at least one year or a number of years if you save long enough.
Let’s say we added up all the time you spent inside a car: on your daily commute, going through a traffic jam, driving around looking for parking, and so on; it’s probably fair to say all of that takes up to about two hours daily for each work day. That’s a lot of time! If you went about your day using public transport or ride-sharing, you could easily spend all that time reading, relaxing with Netflix or playing games, or even strategising your life. Oh, there are so many things you could do inside an LRT, even if you’re just sitting down or standing up the entire time! Also, don’t forget that cycling, walking or running to the nearest station is also transportation generated by body power. It doubles up as sorely needed exercise.
For entrepreneurs, ride-sharing is challenging the old idea that you must buy cars for convenience, tax-savings and prestige. Companies can save a lot of capital by replacing company cars with a riding allowance. There’s even the flexibility of choosing deluxe models when the situation calls for it. The hassle of getting from one meeting to another is completely outsourced with a just-in-time chauffeur. And you’d also be accumulating points which go towards reducing overall costs. But most importantly, you’d use your time, money, and energy to focus on things that truly matter.
Riding means you’re choosing to not be stuck in traffic and instead reclaiming your life. It means you’re spending more time with family, friends and yourself. Time is money. You’re even doing your bit for Mother Earth. The last thing the planet needs is everyone with their personal greenhouse gas emitter.
We understand that for some, especially those who don’t live in cities or urban environments, that cars are important. The riding economics may also not work for a family needing more space to travel more and for longer distances. The magic number seems to RM1,000: if ridership costs exceed that, it might be better to buy a car. Some people also just love driving. And that’s totally fine. If you’ve done the math and considered your situation and find that you do in fact need a car, go for it. Differentiating between “I want a car” and “I need a car” always helps.