Don't drive into debt

by Scott Pape, nationally syndicated financial advice columnist and author of The Barefoot Investor.

The situation plays out like this. Barefoot Investor meets girl. Girl; 'So what do you do?' Barefoot - I'm a stockbroker. Girl; 'Sounds impressive'. Fast forward to the next weekend, and I'm about to pick up my new friend for our first date - in the back of a taxi.

Girl looks perplexed, she's thinking I'm either an alcoholic who is going to get liquored up on the first date, an alcoholic who has lost his license, or a bum who doesn't have a car.

Nothing invites more suspicion than someone who 'claims' to be an investment advisor but doesn't even own a car. As the night wears on I make vain attempts at explaining why I don't drive a car, but just like Shane Warne telling us he's gone straight, there's always a lingering suspicion.

Australian's love their shiny automobiles - and the newer the better.

To some people the car you drive is a symbol of your lot in life, that a piece of moulded metal can say as much about your personality as what comes out of your mouth. Marketers have successfully shaped this image for decades - it's a freedom machine, sexual stimulant, and status symbol rolled into one. Just like the serial playboy, there's always a new model just around the corner to tempt you to upgrade.

There are people who are fanatical about cars - usually the people who sit in supermarket car lots with their stereos up and the seats back - who don't just watch the grand prix for the grid girls and the celebrity race. Thankfully, we're not all rev-heads. For the rest of us, let's go behind the marketing hype and investigate just how much that beast in your garage is really costing you.

According to the RACV, keeping a car on the road is costing more than ever. The survey highlighted the total cost of owning a vehicle, including buying, insuring, registering, and maintenance. The results were surprising. A Holden Astra costs $146 a week, while a Ford Falcon or Holden Commodore each take $200 a week out of their owners pockets.

While these figures are high, it's only half the story. In order to move a million cars off the lot a year, manufacturers understand that the typical consumer is in a bind. On the one hand they want something new and shiny that makes them feel like the actors on the car ads, where they look out across a mountain laughing hysterically at how great life really is sitting on the bonnet of your new status symbol. They want to feel wealthy. On the other hand, most of us don't have a spare twenty or thirty grand to pay for it.

The answer to this problem, and also the reason that the majority of people are not wealthy, is that they finance their cars through debt.

As a financial counsellor, I find this the most difficult concept to break through to people. Many broke, stressed out thirty year olds I talk to can actually pinpoint the day that they lost control of their money - when they bought their first car. If you don't have the good fortune to take the advice of a site like keys2drive.com.au, many young people end up borrowing too much money at too high an interest rate, and over the next few years see money sucked out of their savings.
It's really simple logic. Let's say you borrow money to buy a Holden Astra for $20,000. As you drive it off the lot, deeply inhale that sweet new car smell, because experts tell us this scent has just cost you $6,000.

Five years later you've paid off the car plus an extra $10,000 in interest, plus $150 in running costs a week for the last five years which equals a tad under $40,000. All up you've spent $70,000 on a car that five years later would be lucky to be worth $10,000.

I'm not against owning a car. For many people they are a necessity not a luxury. It's important not to be seduced by the marketing, and the easy finance, because just like my mate Matt, you could end up regretting it later in life.

Money is about making choices. Economists call it opportunity cost. Driving a flash car can certainly impress many people, and boost your self esteem, but don't kid yourself that it will boost your bank account.

But this doesn't help my case with the ladies, who are still under the society's hypnotic spin that success comes with all wheel alloys and leather interior. True wealth is not having to prove it through status symbols.

About Scott Pape

The Barefoot Investor offers money and investing advice for the young, and not quite so young. His book, The Barefoot Investor, is a best seller in Australia, and has been released overseas.
Scott also has a nationally syndicated weekly column in all major Newscorp Ltd papers, as well as being a radio commentator for Triple M, and a regular contributor to ABC radio. His mission is to provide people with the best possible financial advice!