Car is not an asset and may make you die poor

When we start to list our assets that I usually fall out with many participants, usually because they choose to list their car as an asset.

Let us be clear: A car does not appreciate in value, does not give you an income (unless you are running a taxi business), and a car definitely is not keeping your money safe. Therefore, and based on the definition of the word “asset”, your car is not an asset. When you do an inventory of your financial situation, your car should not be listed as an asset.

The obvious basic reason why a car is not an asset is that it depreciates in value every minute you drive it, while at the same time draining you of cash to stay fuelled, serviced, and insured. Many people could buy property with what they spend on maintaining their cars.

This is the point at which my participants usually argue that a car is an asset because you can sell it for cash. And I say, when you have the cash in the bank from the sale of the car, the cash is your asset.

The intention to sell the car, which may or may not happen, cannot be an asset. The second argument I get is that you can use the car for security and borrow against it for investment purposes. And I say, when you borrow and invest, that investment is your asset, not the car.

Additional income

Some participants will argue that due to the nature of their work, having a car helps them save time so that they are able to see more clients or present the right image. And it is true; a car is a tool of convenience.

Yes, the car may help you see more clients and, therefore, generate more income so you can invest more. But it is still those investments that become the assets, not the car. If you use the additional income the convenience generates to simply spend more, you have not done yourself any favours.

I have even heard one participant say that the car is an asset because it saves them money they would have used to hire a taxi to drop and pick up children to and from school. I reiterate: Just because it saves you money does not make it an asset. It is what you do with that saving that can develop assets.

If you want to buy a car, do so, by all means. But stop thinking of it as an asset or thinking that it indicates “how well you are doing”.

A car has absolutely no bearing on your financial situation; indeed, there are very many Kenyans who are driving their expensive cars down the highway of debt, speeding towards poverty. Moreover, society has made the car so prized an item that people are feeling pressured into taking loans they cannot afford to maintain an image.

Remember this key rule: Your car is not an asset, but your car can be the tool that helps you generate assets. This is the only way to stay on the road to success.

Author – Waceke Nduati waceke@centonomy.com| twitter @centonomy