Can you really afford that car?

2015-03-02 14:04

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After nearly 11 years of engaging with readers across many publications, I realised that while there are many books that cover the theory behind creating a financial plan and offer encouragement to do so, what was really needed was a money book that offered practical advice on how to implement a money plan.

What has been a labour of love over the last year has now resulted in the book Maya on Money: Implement Your Money Plan.

The information in this book is drawn from years of questions that people from all walks of life have asked me – those day-to-day money questions like:

» How do I budget?

» How do I pay off my debts?

» Which is the best bank account?

» Can I afford a house?

» Where can I invest?

I have drawn on the many conversations with readers with whom I have had the privileged to engage and I hope this book helps you on your money path.

The book is available at any good bookstore and online through Kalahari, Takealot and Raru.

Extract from Maya on Money: Implement your Money Plan

This extract is from the introduction to Chapter 19:

Can I afford to buy a car?

It would not be an exaggeration to say that at least 90% of the people who contact me because they are struggling to make ends meet have bought a car they cannot afford.

When I chat to the housing finance guys at the banks, they all tell me that car finance is the primary reason people cannot afford a home.

Anyone who has had to rely on public transport to get to work will tell you that a car is basically a necessity in South Africa.

There is nothing wrong with wanting to buy a car; the problem comes when you mistake a car for a status symbol rather than something that enables you to get to work on time.

The first question you need to answer is “what does affordable mean?” A car dealer wants to sell the most expensive car in order to make the most commission. They manipulate numbers by spreading the payments over the longest possible time and including a balloon payment (also known as a residual payment).

In a perfect world you should only buy a car for cash; this is possible if you save up and buy a second-hand car. But if you have to finance it, the absolute maximum payment period you should select is 60 months – 48 months would be preferable. You also cannot afford the car if you have to make a final balloon payment at the end of the financing period (I go into this later in the chapter).

What is your real budget?

Before you buy a car, you need to know if you can afford it. Your monthly repayments are only one of many costs that you’ll have to meet each month.

Before deciding on which car to purchase first determine the following:

» How much will petrol cost you each month?

» How much will you spend on maintenance each year?

» How much will you pay for insurance?

Keep in mind that the type of car you buy will determine your monthly running expenses.

A rule of thumb when buying a car is that the running costs for fuel, insurance and maintenance will be equal to your monthly instalment. In other words if your instalment is R3000, budget an additional R3000 a month for running costs.

You can do a more accurate calculation by going on to the Automobile Association website (www.aa.co.za) which has a vehicle rates calculator that calculates the average running cost of a vehicle. Phone a few insurance companies to find out what you would be paying in insurance costs.

Only once you calculate the total running costs of keeping the car on the road can you calculate what you can afford on monthly repayments. All the banks have calculators on their websites that help you calculate your monthly repayments on car finance – this will give you an idea of what price range you can consider.

Car Finance Table

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