A credit investigation field officer arrived today to ask whether a certain Jane** is working for our company.
Apparently, Jane has applied for a car loan at the Philippines Bank. She is planning to buy a Mitsubishi Mirage which retails for around Php 650,000 brand new, and Php 365,000 second hand.
The problem was, Jane has only been in the company for less than 2 months. Her salary was Php 18,000, and the estimated monthly installment for the car was Php 13,000.
That would leave her with Php 5,000 for monthly living expenses. This does not even count for the gas (Php 2,000 per time), maintenance and other miscellaneous expenses that counts in buying a car.
I know that Jane’s husband does not really have a stable job, and hence, most of the car payments will come from her salary.
This is the trap that most people face when it comes to making financial decisions —Buying Beyond their Means.
For most Filipino, finally owning a car is the first step to show that you’ve “made” it so as soon as they can afford it, they buy a car by installment. However, once they cannot make the installment payments anymore, they are forced to sell the car at a loss.
That’s the problem with Filipinos.
We do not like to save.
Whenever we finally have the money, we buy things that we do not need, and unbeknownst to us, put us in debt.
Debt is good when it comes to buying assets.
However, it is not good when it comes to buying liabilities like a brand new car, which already depreciates by 30% as soon as you roll it off the showroom.
“But what’s the point of working if not to buy things for yourself?” you may wonder. “I have been wanting to buy a car for years. Is it not high time for me to reward yourself?”
Sure, but the thing is, a car is not just a car.
There’s maintenance cost.
There’s the license.
There’s parking fees.
There’s ticket fees as well when you get caught.
The cost of the car is not just the car itself, but also all the other expenses that comes along with it. That is why, when we buy, our family never really buys a car brand new. We buy it second or third hand when price is a quarter of what it was.
We bought a second hand Starex for Php 100,000. Our truck is only Php 350,000. Worth brand new, they used to be worth at least Php 1M.
I don’t like to manage my money with my pants down. You know, when you buy when you have no money, and then cry when you do not.
I know you want a car, but if you cannot afford the monthly installments (by having the same amount of money saved up), please DO NOT buy a car yet.
Because a brand new car may bring you temporary joy. But when life gives you lemonada — like if someone gets sick, you lose a job, etc. — where the heck will you get the money to afford a car? It will just be stuck in your garage and you would be forced to sell it at a loss.
Until you are ready, commute instead.
**Name changed for privacy