In a personal net worth statement, we normally classify car as an asset (click here to learn more about net worth statement). Owning a car is often seen as a rite of passage and a symbol of independence. However, is it really an asset that is able to generate cash or a liability that drains our cash?
Brief Discussion on Assets and Liabilities
Before delving into the specifics, it is essential to understand the difference between assets (click here to learn more) and liabilities (click here to learn more). An asset is something that puts money in your pocket, while a liability takes money out of your pocket. In the context of personal finance, an asset appreciates in value over time, generates income, or both. Conversely, a liability depreciates in value and requires ongoing expenses.
Cars as Liabilities
The following are reasons for cars being liabilities:
1. Depreciation
Cars are subject to rapid depreciation. The moment you drive a new car off the lot, it loses a significant portion of its value. In Malaysia, the depreciation rate can be particularly steep due to the high cost of vehicle ownership, including taxes and import duties.
2. Maintenance Costs
Cars require regular maintenance, including oil changes, tire rotations, and occasional repairs. These costs can add up over time, especially as the car ages.
3. Insurance and Road Tax
In Malaysia, car owners must pay for insurance and road tax annually. These expenses are mandatory and can be substantial, depending on the car’s make, model, and engine capacity.
4. Fuel Costs
Fuel is a recurring expense for car owners. While Malaysia has relatively low fuel prices compared to some other countries, the cost can still be significant, especially for those with long commutes or fuel-inefficient vehicles.
5. Parking and Tolls
In urban areas, parking fees can be a considerable expense. Additionally, frequent users of highways will incur toll charges, which can add to the overall cost of car ownership.
6. Opportunity Cost
The money spent on purchasing and maintaining a car could be invested elsewhere, potentially earning a return. The opportunity cost of not investing this money can be significant over time.
Is There Situation that A Car Is An Asset?
Yes. Let’s say you are using the car for e-hailing. Your income is more than enough to cover all expenses for the car. Then this car is an asset for you.
However, I believe this is not the case for most of us.
Alternatives to Car Ownership
Given the financial implications of car ownership, these are some alternatives:
1. Public Transportation
Malaysia’s cities, particularly Kuala Lumpur, have improved their public transportation systems, offering more convenient and cost-effective alternatives to car travel.
2. Ride-Sharing Services
The rise of ride-sharing services like Grab and Maxim provides an on-demand transportation option that can be more economical for occasional trips.
3. Car-Sharing Platforms
Platforms like SOCAR and GoCar allow users to rent cars by the hour or day, reducing the need for car ownership.
4. Bicycles and E-Scooters
For short distances, bicycles and e-scooters offer a sustainable and cost-effective mode of transportation. However, the weather might be a deterrent.
Maintenance Fee
In Malaysia, the maintenance fee for a car can vary widely depending on several factors, including the make and model of the car, its age, the type of service required, and the service provider. Here is a general breakdown of the typical maintenance costs you might expect:
1. Regular Servicing (Minor Service)
This usually includes an oil change, oil filter replacement, and basic checks. The cost can range from RM 150 to RM 300.
2. Major Servicing
A major service involves more comprehensive checks and replacements, such as spark plugs, air filters, fuel filters, and brake fluid. This can cost between RM 300 and RM 800.
3. Tire Replacement
Tire prices vary greatly depending on the brand and type. A single tire can cost between RM100 and RM300, so a set of four tires could range from RM 400 to RM 1,200.
4. Brake System Maintenance
Replacing brake pads can cost between RM 100 and RM 200, while brake discs/rotors can cost between RM 200 and RM 500.
5. Battery Replacement
A new car battery can cost between RM 150 and RM 300.
6. Other Repairs and Checks
Additional repairs, such as air conditioning system maintenance, transmission repairs, or suspension work, can range from a few hundred to over a thousand ringgit, depending on the extent of the work and the parts required.
On average, you might expect to spend around RM 500 to RM 1,000 per year on regular maintenance for a typical car, not including major repairs or replacements. It is important to note that these are approximate figures and actual costs can vary. Luxury or high-performance vehicles will generally have higher maintenance costs due to the need for specialised parts and services. Additionally, older cars may require more frequent repairs and replacements, which can increase the overall maintenance expenses.
To get a more accurate estimate, it is best to consult with a local automotive service provider or refer to the maintenance schedule and recommendations in your car’s owner’s manual. Regular maintenance is crucial for ensuring your car runs smoothly and safely, and it can also help prevent more costly repairs down the line.
Conclusion
While cars offer convenience and freedom, they are primarily liabilities from a financial perspective. You should carefully consider the full cost of car ownership and explore alternative transportation options that may be more economical and sustainable. By doing so, you can make more informed decisions that align with your financial goals and contribute to a more efficient and environmentally friendly society. Nonetheless, if after taking into consideration all the factors and you still think the car is a necessity, you can proceed to purchase a car. Just make sure that the car expenses would not put too much strain on your finances.
How can a financial planner help you?
If you are thinking of buying a car, I can help you to determine a budget based on your current financial standing. We will establish the price and monthly instalments that you can afford, without causing too much stress on your cash flow.
I can help you to clarify your financial goals and objectives, and also identify your assets and liabilities accordingly. Based on your goals and objectives, we would discuss the potential impact of owning a car on your finances.
If you want to, I can also develop a plan to reach your goals and objectives. This normally involves saving and investing. Furthermore, I will also help with your tax planning to reduce your tax liability. Depending on your situation, we may also work together in other areas of your finances, such as debt management and estate planning.
If you are interested in working with me to plan for your finances, just leave your details by clicking the button below. I will reach out to you and see if we would be a good fit for each other.
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Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.
