In our Fast Track Money weekly YouTube live session, I asked Financial Imagineer several questions about the lease and buy. It is interesting to reflect ourselves what is our motivation to own a car. If you really need one, how you can find the most value-for-money option.

Do You Need a Car?

In some cases, you do, in some cases, you don’t. If you live in a metropolitan city with accessible public transportation, owning a car is redundant. It is much faster to get you from point A to point B by public transportation than by car. Even if you need to go by car, you can take a taxi, a Uber, or a Grab depends on which car-sharing services available in your city. In Singapore, it is more expensive to own and maintain a car than to take a taxi every day. It is the case in most big cities. Even if you want to do a weekend trip every now and then, maybe the total cost of leasing a car for the weekends is much less than owning one.

Do you really need a car in this situation? Probably not.

If you live in a remote area where public transportation is not so frequent, maybe it is worth having a car so that you can save time and it gives you a lot of conveniences. For example, I go grocery shopping in a car. Without a car, it would take me 30mins to get to the supermarket instead of 5minutes, I would not be able to carry a week’s grocery back home with my hands. Or if you need to drive around a lot for business or work, by going in your own car, you can save a lot of time and use it to generate more value in your life.

Status Symbol and Lifestyle Choice

In Asian culture, people judge the confidence to do business with you by looking at what kind of car you are driving. If you drive an expensive car, it’s a reflection of being successful. It might open up new business opportunities for you by owning an expensive car. For most of us, I am sure that you have a dream car when you are young. Why we often have dream cars? Thanks to the advertising.

If you think of BMW, you have a certain image in mind.

If you think of Lotus, you have a certain image in mind.

If you think of Audi, you have a certain image in mind.

Those are what car brands position themselves. So they create a lifestyle desire for their target audience. When buying a car, it could be 80% emotional and 20% rational. Sometimes it could be 90% emotional and 10% rational.

If you are a savvy ‘investor’ and money smart, you should think 100% rational. Well, not everyone is 100% rational, you can be 20% emotional when making the decision, but the more rational you are, the more economical your decision will be.

In the book <The Millionaire Next Door>, the most popular car owned by millionaires in the US is Ford, among the top choices are second-hand pick-ups, second hand Toyota and such.

How To ‘Buy’ Smartly

You should consider buying when

• you really NEED a car

• you have enough cash on hand

• you are going to use the car for a few years

Buying a second-hand car is the best choice when it comes to minimizing depreciation costs. In the other article <The Under Estimated Costs of Owning a Car>, I listed out all costs associated with a car, the total amount could shock you. Especially the deprecation part, a 4-year-old Audi costs half of the price of a brand new one. One can say that as soon as the brand new car leaves the car dealer, the value dropped 20%. If you want to buy a car, choose a second hand that is already few years old but in good condition. This will save you a lot of money.

If you take a car loan, you can optimize your cash flow. If the car loan interest rate is lower than your investment return, you can take a loan and use the cash to invest. So your investment generates returns for you which is bigger than your interest payment.

How To ‘Lease’ Smartly

You should consider leasing when

• you really NEED a car

• you are not sure how long you will live in this city or country

• you really like to have new cars to drive every few years

• you want to avoid the hassle of choosing insurances and resell of the car

If you decide to lease, you can compare the leasing rate. Maybe it is better off to lease than to buy. For example, instead of putting $50,000 upfront to buy a car, you can lease one with a $200 monthly payment and include maintenance and such, depends on the actual offer. Then you use the $50,000 to invest which might bring you a $5000 annual return. So your monthly car leasing cost is covered by your investment profit. This option is however more viable for saving investors.

Use Your Car as a Cash Generator

Have you thought about making your car a cashflow generator? It is a depreciating asset, why not let it make some cash for you to compensate the deprecation?

1. Rent your car to a Uber driver. When your car is idly sitting in the garage at night, it could be driven by someone else to make a living. It is a win-win situation. The person does not need to buy a car but can still use it for Uber, you have an idle car sitting in the garage at night. This driver could use it and return in the early morning.

2. Sell the advertising space on your car. Some companies offer advertising decals on private cars in exchange for a fee. The advertisers will be paid by the companies who want to make advertising. Depends on how many kilometers you drive, you are compensated monthly without doing anything. You only need to have the advertisement decal pasted on your back window. You then earn up to a couple of hundreds per month. Find out who is offering this service in your area.

There many creative ways to minimize your loss when acquiring a car. It is not for everyone though. If you put great weight into owning your dream car, might as well do it if it doesn’t hurt your financial future. If you realize the perceived lifestyle/image of owning a car is not worth the price, then you know what you should do.

Subscribe to my YouTube channel to watch more content related to smart money, money mindset, and personal finance, helping you to build a healthy financial future.