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Cars, an investment, asset, liability or just transport?

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We all know the saying that the minute you drive your cars off the showroom floor you can immediately knock 20% off the value

Well if you have ever bought a new or recent model car you will know that this is not true.

Sometimes it’s closer to 30%. The bottom line, most cars are not an investment or an asset.

An asset is something that brings money to you. A liability is something that takes money away from you. So I guess if you take the emotion of ownership away, a car is and should be treated as transport. That’s it. Just a tool to get to from A to B

There are however other factors involved such as pride of ownership, status, and the fact that you probably won’t get work if you don’t have reliable transport.

So, what is the best car?

Well in my view the best car is one that is paid off. Even then it is not an asset, because it depreciates every month, requires tons of fuel, insurance, tires and repairs. The very definition of a liability.

I did an exercise this week and just to prove a point.

I went to a dealership that sells new premium cars at a top facility, they also sell used cars at a separate location.

The used car in question is a 2010 BMW X6 exclusive pack with many extras. New this car is around R1 400 000 depending on extras and accessories. Make no mistake it is an awesome car, new or used.

The used car lot had this car listed at R389 000. It is a clean car, the price seems reasonable for the car and has an extensive extras list. No accidents, full-service history. But as it is a 2010 model, it has no service plan and you will not be able to get one even though it has the main dealerships full-service history and had no adverse comments on the system.

So, here is the major dilemma the used car guy insists the car has been reduced from R418 000 down to R389 000. This final price is not negotiable and there is only a 30-day dealer warranty, no service plan and after 30 days. It’s the new owner’s responsibility to cover repairs and maintenance. That’s normal and most people would agree to those terms

Here is the rub.

Well more of a complete rip-off. I then went to the main dealership and asked for the price of a new car. The salesperson was extremely professional and gave me all the info required to buy a new car for R1 115 000 and there were a ton of finance options and dealer assist buy back options. So far, all good.  There are some very creative finance options when you start talking this type of money for a new car.

However “my” BMW X6 as described above from the used car division, which is selling for R389 000, with no motor plan. but filled with extras, would be used as a trade in, now this is where the true value of the car becomes apparent. Despite the new sales representative consulting with external dealers who provide a trade in “cover price”. The new dealership would not even trade in their own brand and when pushed for a price as a trade in, the maximum price I could trade “my” X6 in was  R200 000

So what did I learn?

I can go and purchase a car for R389 000 (or have my actual existing car of similar value, model etc.) drive it down the road to the main new cars dealership and take an immediate R189 000 punch in the face. A 30% reduction is starting to sound like a good deal considering that this example is closer to 50%.

If you can take the emotion and status factor out of the equation and apply some logic and treat your car as transport, then maybe you won’t lose as much. Let the buyer beware! Do your homework, shop around and get the trade in price to understand the financial difference between what you will pay and the true trade in value of your car will be in the future. Remember to do a total cost calculation of ownership.

Last thought

A second class ride is better than a first class walk . Buy wisely, within your budget and make smart money choices!

Remember to set up your personal budget on www.smartmoney.co.za

Correspondent: Craig Shelley

Budgeting

South African Smart Money – Financial Education & Literacy

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Financial literacy key to South Africa’s inclusive growth

27 February 2018 Clarence Nethengwe, Old Mutual

Clarence Nethengwe, MD of Old Mutual’s Mass and Foundation Cluster.

Statistics show that South Africans continue to be big borrowers and poor savers, and the financial services sector needs to intensify its efforts to address the situation.

This is the view of Clarence Nethengwe, MD of Old Mutual’s Mass and Foundation Cluster, who says reducing indebtedness and improving savings in South Africa is a major socio-economic challenge facing us as a society.

Our metro working population spends an average of 19% of their salaries on paying back debt, according to the 2017 Old Mutual Savings & Investment Monitor, while the National Credit Monitor reports that only 48% of the 24 million credit active consumers in the country were up to date with their credit repayments in the first quarter of 2017.

“Although these bad money habits are fuelled by the current economic environment and rising living costs, it is a lack of financial knowledge that entrenches them,” says Nethengwe.

“While most South Africans know there is a connection between education and long-term prosperity, too few make the connection between savings and wealth creation.” The financial services sector has an important role to play in helping to build a society that understands the importance of financial planning and commitment.

“By scaling up practical financial education we can empower South Africans to take control of their future and make it more financially secure.”

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Encouraging more responsible and informed decision-making not only benefits individuals, it also boosts the prosperity and financial stability of the whole nation.

Healthy, financially stable economies are built largely on the savings of individuals. Strong national savings help to finance national development projects and reduce South Africa’s dependency on foreign investment.

Financial education is as urgent as other types of education, Nethengwe believes. “Its role in uplifting lives and transforming the economy cannot be underestimated. The more effective our financial education initiatives, the more motivated and equipped consumers will be to make financial decisions that will improve not only their own long-term security and wellbeing but also help combat the national plague of poverty and inequality.

“The challenge of guiding people to do great things with whatever money they have extends to all the players in the financial services industry. It’s up to all of us to work together to help build a savings culture that will transform our society.”
Ideally, concepts such as compound interest need to be taught from a young age, to help counteract the celebrity-driven allure of conspicuous consumption. Today’s consumer-driven society has come to regard luxury vehicles, expensive clothing, the latest cellphones and property in upmarket suburbs as highly desirable – even essential – status symbols.

The craving for instant gratification is evident too in our festive season binge shopping. There’s a reluctance to think long-term and a lack of awareness that debt can be hazardous to your financial health unless it’s part of a carefully considered financial plan.

A young professional who qualifies for vehicle finance of R10 000 per month, for example, needs to know that they would be better off over the long term if they drive a less expensive car for a few years and saves the difference to reap the rewards of compound interest instead.
Financial education, and knowing how to plan for both long-term and short-term needs, will set more South Africans on a wealth creation path.

“We also need to dispel the myth that financial planning is only for the rich and elite,” Nethengwe points out. Even those earning a basic income or students who receive government funding or have taken out student loans need to have a financial plan to map out their future.

“With financial knowledge and a more disciplined savings mind-set, South Africans will be far better equipped to improve their personal finances, and open opportunities for prosperity,” concludes Nethengwe.

Source: https://www.fanews.co.za/article/company-news-results/1/old-mutual/1049/financial-literacy-key-to-south-africa-s-inclusive-growth/23875

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Cell Phone & Gym Contracts – Drop That Pen – Do Not Sign!

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5 things you need to know about ending your gym or cell phone contract

The contract doesn’t just end when then one or the two-year term “expires”. If you do nothing, other than assuming that it’s all over, you’re in for a not-so-nice surprise – the contract will continue on a month-to-month basis, and you will remain liable for those monthly subscriptions.

If you don’t want to renew your contract, find out what the cancellation policy is – it will be in your contract. In most cases, you must cancel in writing a month before the contract expires.

You may cancel any time before the end of your contract, but cancellation penalties are payable, and especially in the case of cellphone contracts, they are massive.

Before signing a gym contract, make sure you check out the cancellation clause – you don’t want to have to pay anything more than 40% of total remaining subscriptions for the full term if you cancel early. Some are as high as 70 or 80%.

If you didn’t cancel in writing, assuming that your contract would just “die” on its own, and you find out months later that your debit order is still active, you may have an escape shoot.

The Consumer Protection Act requires companies to get in touch with you “in a recordable form” between 40 and 80 days before that fixed term expires, to inform you when your contract will expire and spell out your options – renewal or cancellation. That notification must also inform you that if you fail to respond, your contract will continue on a month-to-month basis after the expiry of the contract term.

If they can’t prove to you that you were sent that notification, ask them (in writing) to cancel your contract immediately and refund you any fees they took via debit order after the expiry of your contract term. There is an Ombudsman for Consumer Goods and Services ruling that supports this.

If you choose to keep your cellphone contract going on a month-to-month basis after your initial period expires, make sure the monthly subscription is reduced to take into account the fact that your phone or tablet is paid off.

Source: CONSUMERTALK WITH WENDY KNOWLER

http://www.capetalk.co.za/articles/299142/5-things-you-need-to-know-about-ending-your-gym-or-cellphone-contract

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Medical Aid Shocks – More Financial Pain for Tax Payers

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While it is not known exactly when these changes will be implemented, Blecher warned that it would be low and middle-income earners who would be the hardest hit.

According to SARS’ official documentation on medical aid tax credit, this phasing out could equate to medical aid members forfeiting anything between R300 and over R1,000 a month depending on the number of dependents on the plan, the scheme itself, and who the main policy-holder is.

While the impact of this plan is relatively slight for a single medical-aid holder (R303 a month, or R3,636 a year), the effects will have a more significant impact for a family of four (R1,014 a month or R12,168 a year).

It should be noted that while tax credits were the main funding proposal suggested to fund the NHI, health minister Aaron Motsoaledi has indicated that other mandatory charges are also likely to be implemented.

These additional charges and the final implementation date of the NHI have still not been confirmed.

What are medical aid tax credits?

A Medical Scheme Fees Tax Credit (also known as an “MTC”) is a rebate which reduces the normal tax a person pays.

This rebate is non-refundable and any portion that is not allowed in the current year can’t be carried over to the next year of assessment, according to SARS.

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The MTC effectively replaced part of the tax deduction that was specifically allowed for medical scheme contributions and applies to fees paid by a taxpayer to a registered medical scheme (or similar registered scheme outside South Africa) for that taxpayer and his or her “dependents” (as defined in the Medical Schemes Act).

“This MTC seeks to bring about greater fairness and help achieve greater equality in the treatment of medical expenses across all income groups,” SARS said.

Money back

The following fixed monthly amounts are based on the 2016/2017 and 2017/2018 years of assessment.

The amounts may vary depending on the number of months in the tax year that a taxpayer and dependents are members of a medical scheme fund.

Tax credit per month 2017 2018
For the taxpayer who paid the medical scheme contributions R303 R286
For the first dependant R303 R286
For each additional dependant (s) R204 R192

 

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