YOUR CAR IS NOT AN ASSET

Over the last couple of weeks I have been training employees of a certain company on Personal Financial Management. During the training we get people to list down their Assets and Liabilities with the aim of coming to correct terms with their financial status today. We call this exercise “facing the man in the mirror”. We always ask them to define what an Asset is and without fail the responses we get is that an asset appreciates in value and/or generates an income. Some also say an asset may at the very least preserve the value of your money. Note that these definitions come from the people we train and not ourselves. We however do completely agree with that definition of what an asset does. As we have progressed in the training, one of the most contentious parts comes in when we declare that CARS ARE NOT ASSETS! The same people who gave us the definition of ASSETS were the same people to absolutely defend why a car is an asset though a car definitely does not appreciate in value, does not give you an income (unless you are running a taxi business) and a car definitely is not keeping your money safe. So I am categorically stating that your car is not an ASSET. When you do an inventory of where you are financially speaking, you car should not be listed as an asset. It is a personal belonging but since it does not do any of the things mentioned in the definition of an asset, it just doesn’t belong there. If you are taking stock of what you own generally, you may list down your car. However if you are taking stock of what works for you financially, this is completely different and your personal belongings (including your car) should not feature there.

The obvious basic reason why a car is not an asset is that it depreciates in value while at the same time removing money from your pocket. Your car is loosing value every day that you are driving it and at the same time eating into your wallet to maintain it in terms of fuel, service, insurance etc. Many people could buy property with what they spend on maintaining their cars annually. Many people in the training argued that it is an asset because you can sell it and get cash. When you have the cash in the bank from sale of the car, the CASH is what is the asset. The intention of selling the car, which may or may not happen, cannot be an asset. Others argued that they could use the car for security and borrow against it for investment purposes. When you do this, that investment that you actually do becomes the asset. It is still not the car that is an asset. We had lots of people saying that due to the nature of their work, having a car helps them in terms of saving time so that they are able to see more clients or present the right image. I am not arguing against the convenience of having the car. The convenience may help you see more clients, generate more income so you can invest more. Again it is still those investments that become the assets and not the car. If you use the additional income the convenience generates to simply spend more you have not done yourself any favours. Someone said that the car is an asset because it saves them money they would have used in hiring a taxi to drop and pick children from school. Just because it saves you money does not make it an asset. Once again its what you do with that saving that can develop assets.

I am not saying you should not have a car. I understand the convenience that comes with having a car. I am simply trying to remove the false security of thinking your car is an asset and deluding yourself into thinking “you are doing well” because of the kind of car you drive. It’s absurd to think your car has any bearing on how wealthy you are or are not. In addition our image drive society has over emphasized the importance of the kind of car you drive to the point where people continuously feel pressured to upgrade their cars and take bad loans to do so. As mentioned in a previous article I wrote, many will one day wake up to realise they were “Speeding down the highway of poverty in a luxury vehicle”. Evaluate this scenario. One day you retire. You no longer have an income. You open the fridge and realise there is no bread and milk for breakfast. Your nice car is parked outside. How does it help you get bread and milk? It can’t unless you go sell the car hence converting it into cash (which is an asset). Do you really want to be forced to sell your personal belongings to eat? If you didn’t have other real assets generating an income for you, you would not be able to buy bread and milk, despite having a car. There is nothing like “Investing in a car”. If your car has been the biggest item in your list of investments, that’s a problem and it is time to remove it from the list and do real investments that will work for you.

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com |

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POINTS TO CONSIDER
• Your car is a PERSONAL BELONGING and not an ASSET
• Your car looses value every day you drive it and removes money from your pocket through maintenance costs. This is the OPPOSITE of what an asset does i.e. appreciate in value and/or generates income.
• Do not spend your life upgrading your car at the expense of real investments otherwise you will find you were all along “Speeding down the highway of poverty in a luxury car”.
• If you have to continuously take loans to maintain your car e.g. fuel, insurance, servicing – it means you cannot afford to driving that car.