Social media has become an important part of our lives today. Content creators and influencers, in a way, shape our purchase decisions and in the larger picture, the way we live. Financial influencing is, in fact, a highly rewarding niche. In the recent past, we have seen the rise of many financial influencers (also referred to as ‘finfluencers’). Many of them often advise against purchasing a car, calling it a bad financial decision. Now, a chartered accountant (CA) from Bengaluru has shared a post on LinkedIn explaining why this is a generic advice and why people should not follow it blindly. She details how owning a car makes much financial sense in most metro cities...
Image: screenshot of LinkedIn post
Meenal Goel is a chartered accountant from New Delhi who is quite popular on LinkedIn. In her latest post, she explains how buying a car helped her save nearly 2 lakh rupees. She starts by setting the context. According to most finance pages on social media, a car is a depreciable asset. What you buy for say Rs 3 lakh today, will depreciate fast and reach a value of Rs 42,840 by the sixth year. It is thus not a good financial decision to buy one.
Meenal calls this analysis generic and ‘absurd’. She then explains her own experience. In 2019, she was living in the outskirts of Bengaluru, another Indian city known for its crowded roads and long commuting times. She says that her daily commute time to the office (a distance of 25 km to and fro) amounted to more than 2 hours.
*Image for representation purposes only
She used to take a cab (Uber) to work then. This means that every month, she would spend a sizeable sum on cab fare. This, she says, was around 36% of her monthly budget. It was due to these expenses that she started thinking of buying a car.
She did detailed math on the possible expenses, the results of which are given in the LinkedIn post, and eventually made the purchase. She would pay a down payment of Rs 2.6 lakh. After five years, she ended up paying Rs 5.4 lakh in EMIs. The maintenance expenses stood at Rs 37,000. Insurance amounted to Rs 1.1 lakh.
5-year Commuting expenses on weekdays stood at Rs 1.95 lakh. Cost per km was around Rs 6. Weekend commutes averaged a distance of 15km. Expenses for the same were around Rs ₹23,400. She also did road trips occasionally. Having her own car helped a lot here. The expenses of 4 road trips (1000 km each) stood at Rs 1.2 lakh. After five years, she would sell the car off for approximately Rs 1.2 lakh. In the larger picture, she would end up spending Rs 11.11 lakh in this case.
Meenal then talks about the expenses she would have incurred if she were to keep using Uber for five years. Commuting expenses on weekdays would amount to Rs 8.87 lakh (Rs 27/km for 25 km to and fro per day). The fare per kilometer on weekends would be around Rs 20. This means that the 15 km weekend run would cost her Rs 78,000. Road trips are much more expensive when relying on Uber, than with private vehicle. The cost for four road trips (1000 km each) would be around Rs 4 lakh- Rs 2.8 lakh more than the previous case.
*Image for representation purposes only
The total spent on Uber after five years would be around Rs 13.55 lakh. Comparing the two, the CA here seems to have saved over 2 lakh rupees over five years, by just switching to personal commute from relying on Uber. This contradicts the finance mantra advocated by finfluencers.
As Meenal explains in her post, depreciation alone should not be the sole metric to decide if buying a car makes financial sense or not. A car is a tool that we use to simplify life and achieve larger goals more efficiently. Whether acquiring one would make financial sense or not depends on individual use cases. A blanket advice or generic formula or metrices will not work in many such cases. In a crowded metro like Bengaluru, it makes much sense to own a car than to hire one.
Should you buy a car is thus a question that must be explored on a personal level. Proper math and analysis should be done before arriving at a conclusion. As this CA says in her closing remarks- Don't base your financial decisions on irrational and generic advice. Evaluate based on your own numbers."