Lessons Well Learnt
Right and Wrong
There is generally a right and a wrong way to do things. There is definitely a right and a wrong way to buy a car. When I was much younger, I found the wrong way and paid a large price for that decision. This article makes me realise just how much I have learnt through experience and just how many mistakes I have made. I hope to pass on these mistakes to my students.
Teaching From Past Mistakes
As a teacher, I often experience those times when a student that I teach is leaving for another school. Or maybe it’s me who is leaving. This means the occasional farewell card or note from a student just saying goodbye and thanks. They often make me laugh.
A couple of years ago two such messages made me laugh for the exact same reason. One said something along the lines of ‘Thank you for being a great teacher. I learnt so much. And I promise that I will never buy a car with a credit card’. The other pretty much said the same thing.
I like to share my own experiences when explaining something to my class. This often means giving away little pieces of myself that I hope can help students to make better choices than I did when I was younger.
Yes, that’s right. I really did buy a car with a credit card. I was young, broke and stupid. I would assume that every single person in the world would consider this a really dumb thing to do. Apparently not.
I did some research and found that there are others just as reckless as me and that there may even be some justification for doing so. I haven’t bothered to look further into these justifications. I just prefer to think of it as a stupid thing that I would never have done if I had any financial sense.
Why Did I Buy A Car With A Credit Card?
As I said, I was poor. I was struggling my way through university as a 20-year-old without a car and sick of taking the bus home. I just felt incomplete without a car. To my surprise, a bank gave me a credit card despite my having no job and my only income coming from a fortnightly government payment that was less than unemployment benefits.
I couldnt get a car loan and decided to simply use my credit card to take out a cash advance from the ATM and paid for my 1980 model Toyota Corolla with cash. I think it was about $3000 which in 1989 was quite a bit. It actually works out to be around $7300 in today’s terms. That $3000 is one important number in the story. The other is the 18% per annum interest that I was not particularly concerned about at the time. Yes, credit card interest rates have always been high.
I recall just thinking that the monthly payment was manageable. I wasn’t thinking about how long it would take to pay the whole outstanding balance if I continued to just pay the minimum. Years later I worked out that if I continued to simply pay the monthly amount of around $50 that it would take 13 years and cost a total of around $8500. That’s for a pretty crappy $3000 car that might not even last that long.
I did manage to pay it off earlier, but not before paying almost double the $3000. I recall also being constantly stressed about the debt and struggling to make the minimum payment as well as not being able to afford basic maintenance and at times fuel. Yeah, uni days were overall fun, but I didn’t make things easy for myself financially.
Lacking Discipline
It’s the lack of discipline and the craving for material things and conveniences that often get young people in trouble. It wasn’t the only time to make bad money decision. But it was one of the most costly.
When I eventually sold the car 5 or 6 years later, I virtually gave it away to the scrap yard. I was then on the lookout for a new improved form of transport and another source of finance. Of course, each car must be an improvement on the last. We tend to think the same way about real estate.
How To Buy A Car The Right Way
Cars really are a common source of financial problems and can hinder a person’s ability to get ahead. Taking out a loan to buy a car ties up money that could otherwise be saved and invested. The problem is also that most people get tempted into buying a new car with all the bells and whistles and with a huge monthly payment.
My research has indicated that some very wealthy people buy second-hand cars because they can’t stand the thought of losing so much value the moment a new car becomes a used car.
Cars Are Not Assets
Cars are the opposite of assets. They don’t bring in income and they fall in value. They also require maintenance, registration and fuel. I have really appreciated living in locations where I just haven’t needed a car. But if I was to live my life over, I would be really working hard to pay cash for any car that I bought.
This is just one of many lessons that I have learnt over the years. We’re all wise in hindsight, but I don’t recall anyone ever guiding me on how ‘not’ to make stupid financial decisions. It certainly was never a lesson taught in my high school.
I can feel proud though that I wasn’t afraid to share my story of a stupid financial decision with my students. I really hope they keep their promise and don’t make the same mistake as their teacher.
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