Today let us evaluate whether your spending on transportation is consistent with your goals and objectives. This is a sensitive area as it addresses lifestyle choices.
Transportation costs include the cost of public transport, and/or the cost of the vehicle, any bank payment, gas and oils, licences and road taxes, maintenance and repairs, parking and possible car rental costs.
I am betting that the list for operating a private vehicle is longer than you expected. Owning a vehicle is more expensive than most people realize.
We see it all the time: young career people undertaking the expense of purchasing a brand new $50 000-plus vehicle. Their purchase decision is typically more motivated by the belief that their contemporaries are watching and that that shiny new vehicle is a marker of success.
The question is: how does this expense sit, relative to the other expenses in their budget? Is that person paying off their student loan as quickly as possible? Are they contributing to the household budget at their parents’ home? To what extent are they saving and investing? Have they considered plans for acquiring a home (rented or mortgaged) and for setting aside for retirement?
Explicit consideration of the relative proportions of typical budget expenditures and of their long-term goals is more likely to see such people take the preferred steps needed to keep their expenses more balanced. Yet, controlling transportation costs is a difficult task for everyone who sees the vehicle they drive as affecting the perception of their status, a marker of the quality of their lifestyle. Then, choices for expending on transportation costs become more of an emotionally based decision.
The ultimate question is: are your transportation costs in reasonable proportion to your income budget?
Public transport typically provides the cheaper option compared to owning a vehicle. So, the first choice is whether to purchase a vehicle or not. Owning a vehicle provides greater flexibility compared to depending on public transport. Certain jobs specifically require the candidate to own and use a vehicle. Here, then, are six pointers in considering this question:
1. It is typically better to purchase, preferably for cash, the vehicle than to rent or lease it.
2. If necessary, purchase a less expensive vehicle, even a used vehicle in good condition.
3. If you must borrow, limit the debt you undertake and shop around for your loan in order to minimize the loan interest. Ensure that you are repaying with interest attributed to the reducing balance and not on an add-on basis.
4. Maintain your vehicle according to the recommended schedule; certain costs accumulate slowly, yet surely, from lack of maintenance, such as higher repair costs and shorter vehicle life.
5. Learn simple ways of self-maintenance of your vehicle – first of all, reading and following the vehicle user manual; and learning to change the oil and checking the wheels, for example.
6. Shop around for vehicle insurance, preferably having comprehensive coverage, even if it is necessary to negotiate an increased deductible in order to keep the insurance affordable.
Purchasing a vehicle is one of the budget choices that is more often than not guided by emotions. People rarely stop and think rationally after experiencing that scent in the new car showrooms. Transportation costs are therefore a very important category of costs that can provide scope for adjusting your budget when looking to contain or reorganize costs.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
