Dirty Rats

“Tick-tick-tick-tick.”

Our family wagon was having a moment.

The indicator seemed to be hyperventilating, ticking madly at triple speed.

‘Probably nothing’, I thought to myself.

Then a red warning light began flashing: ‘brake light failure’.

Okay, so brake lights are kind of a non-negotiable.

I detoured to the local mechanic’s, just to be on the safe side.

“You got rats!” he announced after popping the bonnet.

“They’ve chewed through nearly all the wiring … I’m surprised you couldn’t smell them.”

I was not surprised. Our family wagon is a house party for a mouse party: half-eaten Cruskits, discarded Vegemite toast, rotting peaches, even the odd nappy. It’s revolting.

So serves us right, right?

Well, our other car — my car — is a strict ‘no food zone’, yet as soon as I got home and opened the door I knew Mickey and his mates had spent the weekend partying there too.

(Life on the farm has its drawbacks.)

Yet what happened next floored us:

The insurance company got the mechanic’s bill to painstakingly strip back both cars and redo all the wiring … and decided it would be cheaper to write off both our cars instead!

So, being the Barefoot Investor, I set off to buy two used cars.

And that was when the real trouble started.

My first call was to a mate who works at a used car dealership in the bush:

“Sorry, I’ve got no stock”, he said. “I sold the last two cars on the lot to a dealer in Perth! He’s transporting them over there for god sakes! In my 25 years in this industry, I have never seen anything like it.”

He was right.

Over the next few weeks, every used car I looked at was priced around 30% higher than Redbook (the industry pricing database) indicated it should be.

What was going on?

Aren’t cars supposed to fall in value?

Normally, yes.

In fact, by as much as 40% over the first five years.

Why?

Well, mainly because we Aussies purchase around 1.1 million brand-new cars each year. (A staggering figure given there’s only 25 million of us on the island!)

Yet in 2020, like most things, the car market had a bingle.

We still wanted to buy cars, especially to escape the great unwashed on public transport.

Yet, because of COVID-related factory closures, the global car industry supplied 23% fewer cars in 2020 than normal. And so demand spilled over to the used car market: Moody’s Analytics found that second-hand car prices increased 36% last year — the biggest on record.

In other words, for the first time ever, the demand for cars outstripped the supply.

So in the end we split the difference and bought both a new and a used car.

Which shows just how fortunate we are.

Spare a thought for young people: not only have they borne the brunt of the COVID layoffs (being part-time and casual workers), but the cost of their first set of wheels has just gone up by a third!

If that’s you, don’t panic.

Truth is, you have a wonderfully long road-trip full of adventure ahead.

And remember, one day that open road may turn into a school run. You’ll find yourself behind the wheel of a people-mover, with cranky kids in the back and a woeful whiff of rotting peaches (and mice droppings) coming through the vents.

Soak in the smell of freedom while it lasts!

Tread Your Own Path!

Netflix For Cars?

Hi Scott,

I homeschool my 11- and 13-year-old girls. This week, after reading your letter to Sally (the teacher with car loan issues), I decided to ditch my maths lesson for the day and teach your ‘car finance’ lesson. It was such an eye-opener for my girls and a truly great life lesson. They were gobsmacked by the repayment amounts! The lesson has inspired them to teach everyone else in our extended family about the consequences of buying a car with credit. Thank you for the work you do.

Sarah

Hi Sarah,

As the question above shows, cars are very seductive!

And that’s why I love the fact that you’re taking your daughters through this lesson.It is kind of frightening to add up all the costs of owning a car that is parked 95% of the time!

That’s why cars are going the way of Netflix ‒ being offered for a monthly subscription:

In the US last week Hertz launched a car subscription service: for ,000 a month you get a new car, full maintenance, roadside assistance and insurance (and there’s no ongoing commitment, so you can take it up in December, ditch it in January, and not have any of the ongoing costs).

And it’s not just car rental companies: Volvo launched a subscription service at $600 a month that went berserk, and Mercedes-Benz, BMW, Audi, Porsche are all planning something similar.

Will this be a good deal for drivers? Time will tell. Then again, if Uber has its way, no one will drive at all!

Scott

Should We Make the Sacrifice?

Hi Scott,

My husband and I are two months away from finally clearing nearly $100,000 of card debt we racked up some years ago. Now we are about to start a family and want to buy a new Mazda CX-5. We are thinking of doing this through salary sacrificing, which would cost us a fortnightly fee including all on-road costs. However, we are nervous about getting caught up in long-term debt again. Is salary sacrificing a safe option for getting a car?

Jess

Hi Jess,

Are you freaking crazy?

No, you should not borrow to buy a brand-new $40,000 car.

You’re like an alcoholic who celebrates their sobriety with a Jäger Bomb!

The only thing you should be salary sacrificing is superannuation (after you’ve saved up a deposit and bought your first home ‒ Barefoot Step 4). You have two months till you pay off all your debts. After that save up and buy the cheapest, safest second-hand car your ego can afford.

You’re doing great, don’t blow it!

Scott

Car Crash Classroom

Hi Scott,

I am a 25-year-old teacher and I got a car loan in my second year of uni. I had no idea what interest rates were, or how getting a loan worked, and just signed away on the first deal I got accepted for (which ended up being a fixed rate loan with a 17% interest rate). I have now finished uni and am teaching, earning $63,000 p.a. I want to start saving towards my first house, but I have had the car for four years and still owe $8,000! How do I go about fixing this mess?

Sarah

Hi Sarah,

Honk your horn, because you just got totally rear-ended on that deal.

You signed up to a 17% p.a interest rate, fixed for the term of the loan?

Hopefully the term of the loan is five years, which would mean you’ll be free in 12 months’ time. (Though it’s worth checking your contract to see if you can repay early without penalty.)

Unfortunately, I have no magic wand for you. However, you can be the fairy godmother to your students, by making sure they don’t fall for the same trap you did.

So what I want you to do Sarah is to stand up in front of your class and tell your students just how ‘toot, toot, chugga, chugga-d’ you got when you bought a car.

Actually, don’t do that, they’ll use it against you.

Here’s how old Barefoot would teach it.

(It involves harnessing their hormones ‒ their desire to buy a car, travel, party, and get rich!)

Here goes:I’d channel my inner Oprah and start running between the desks and yelling at the kids:

“You get a car! You get a car! You get a car!”(Sorry … got a bit carried away there. Let’s get serious.)

Okay, students. Eyes front. Shoes off. Barefoot is here.

Step 1: Research a car you’d like to buy

Don’t censor yourself ‒ it can be any car you want (new or second hand).

Write down two things:

The cost of the car, which will involve some online research.

And why you chose this particular dream machine: Is it fast? Cute? Would it make you 10% more attractive?

(The class can then vote on the cars the students have chosen.)

Step 2: Decide how you’re going to pay for it

Let’s say you earn $30,000 a year once you leave school, which gives you $2,100 a month in your hand.

You can get a car loan with super-easy low monthly repayments. Why wouldn’t you?

Or you can save up and buy something for cash (though not as flash).

Step 3: App It Up

Download ‘Money Smart Cars’, a nifty car app from Moneysmart.gov.au which automatically calculates all the ongoing costs of owning a car.

Here’s an example:

Lucy buys an adorable 2016 Suzuki Swift for $13,000 and takes out a car loan at the car yard.

How much will this car cost Lucy over the next five years?

$20,000?

$30,000?

Go to the app and type in the details. After factoring in rego and insurance, interest and running costs (including $50 a week in petrol), the total cost of owning the Suzuki after five years is … a Swift $53,765!

(That’s Oprah money right there)

Scott

Can I Buy a Corvette?

Hi Scott,

I am 31 and earn $120,000; my wife earns $90,000. We have a $750,000 mortgage on a house worth $1 million, $10,000 in index shares, and $20,000 in Mojo. Can I buy a $40,000 1970 Corvette Stingray? Or is that totally irresponsible? I would save up and pay cash for it, I promise!

Rob

Hi Rob,

Years ago my wife got a bloke in to measure up some curtains.

As he was up on his ladder, she asked him, “Will this fabric give full block-out?”

He looked at her, then turned to me -- the man -- and gave the answer. (“Well, mate, you have to understand that total block-out is not …”)

This little game played out for the next five minutes -- my wife getting increasingly testy, me trying to play sexist charades with the curtains guy (raising my eyebrows and nodding to my wife) ... and the curtains guy being totally oblivious as to who really wore the pants (and the curtains) in our household.

Bottom line?

The curtains bloke didn’t get the job … and it looks like it’s curtains for your Corvette. Now that’s got nothing to do with whether you can afford it, and everything to do with the fact that you’re writing to me about it, rather than discussing it with your wife on a Barefoot Date Night.

Scott

How to Save 98% of Your Income

Hi Scott,

My mum and I always read your column, and it is one of few times we stop arguing and have great discussions. I am in Year 11 and interested in sports journalism and management. I have worked at KFC for 18 months and saved 98% of my pay, just over $3,000. Thinking ahead to next year when I get my licence, I will not be able to buy much of a car so I was hoping to invest some of my savings. Would be grateful for your advice. Oh yes, and I turn 17 soon, so your book would be a wonderful gift, don’t you think! 

Mark

Hey Mark,

First of all, congratulations on being a saver; it’s the number one habit of financially successful people.

However, the ‘11 secret herbs and spices’ on how you’re able to save 98% of your pay packet is … it’s your mother who’s picking up the tab. Finger lick’n good!

So what should you do?

First, put $500 into a Mojo account, so you can stand on your own two drumsticks.

Second, if you’re focusing on long-term investing, think superannuation. Just make sure you’re not getting screwed with fees on your super, and think about opting out of the expensive (and automatic) life insurance while you’re young and still living at home.

Third, start researching what wheels you can buy for around $7,000 (like, say, an early noughties Subaru Forester … rugged, urban, yet understated), and then apply your hard work and savings ability until you get it.

Oh, and if you’re saving 98% of your income, buy your own bloody book … better yet, buy one for your lovely mum!

Scott