Finance

Burning gas, burning cash


“Congratulations Mike*. You have passed the trades exam and are now fully qualified as a technical specialist!”
“Thanks, now I can get the pay raise!”
“Ya, but with all the deductions, the net amount is just around $10 more a day”
“So $300 a month… that’s enough for a car payment…”
I was stunned. I could not believe what I heard from my good friend. I was also saddened by the fact that my friend actually thought of taking out a loan to purchase a fast-depreciating asset!
Seems like everybody nowadays is thinking of buying a newer car. Another colleague of mine has taken out a loan to buy a BMW. Another one is contemplating a loan to buy a Jaguar(!) The marketing department of the auto manufacturers or dealers must be doing a darn good job.
It’s not like this is their first time buying a car, they each already have a car or more, and a pretty new car too.
When I asked the friend why was he thinking of getting a new car? He said that with 3 growing kids, they are fighting for space. But he already has a big SUV (Toyota Venza), which was bought three years ago. There really is no sensible reason to get a newer car.

(Back of a 2010 Venza)

When I was a kid, my parents had a two-door Honda Civic compact and I had to share the back seat with my sister.

(https://static.cargurus.com/images/site/2008/03/11/21/11/1981_honda_civic-pic-60094-1600×1200.jpeg)

Abraham Maslow, the American psychologist who was best known for creating Maslow’s hierarchy of needs (https://en.wikipedia.org/wiki/Abraham_Maslow), which describes the stages of growth in humans. Maslow used the terms “physiological”, “safety”, “belonging” and “love”, “esteem”, “self-actualization”, and “self-transcendence” to describe the pattern that human motivations generally move through.
However, at least in the developed, or so-called ‘First World’, nations, the power of marketing has flattened this pyramid of hierarchy. So the different stages become mixed with each other.

(https://www.simplypsychology.org/maslow.html)

With the blurring of these stage boundaries, what was used to be in the “esteem” stage, has been pushed down to the “safety” stage. In other word, the ‘wants’ have now become the ‘needs’. This does not bode well for typical consumers, who will inevitably by saddled with more debt. They are pawning  their future, and that of their children, for present short-term gratifications or to fulfill some emotional needs.
Among the more financial savvy, Financial Samurai says that we should not spend no more than 10% of our gross income on wheels. This is a good rule of thumb. Sure, we might not get the car of our dream, so if we want better car choices, get out there and earn more 🙂 …. whether getting a better-paying job, or side jobs. Yes it can be tough. So either we have it tough now, or we have it later. All that debt will come back and haunt us if we let it grow out of sight.

* Name has been changed for privacy of all concerned.