Spending to Impress 1 – My Mercedes is Bigger Than Yours
Posted on | March 8, 2010 | 6 Comments
In today’s Nigeria, I think “My Range Rover is Bigger Than Yours” is more apt. I had fun coming up with the topic for this post. Apart from “Decision Quality” which I will take in another series, I thought of funny themes like “My Generator is Bigger Than Yours”, “My Neighborhood is Fancier Than Yours”, “My Children’s School is More Expensive Than Yours”, “My Phone Has More Features Than Yours” etc
Spending is an emotional decision, and we use it sometimes to fulfill the human need to belong, or be looked up to. If we do not think with the big picture in mind, we tend to get bogged down with the present, spending money we don’t have to buy things we don’t need to impress people we don’t like.
Although this post is not about automobiles, I will use the automobile as a scape goat to make my point, since the automobile is the most visible culprit. You can’t hide your car. This is a huge topic, and in my opinion, arguably the single most important reason why we have no savings, why we run out of money and run to others for bail out. An unwise spending decision that wipes out our earnings and leaves us with no seed capital to start that business.
In my series on the five monsters that attack and ravage our finances, this is the image monster. We spend based on what others think. In today’s Nigeria, most parents will rather die than send their children to a public school, no matter current improvements. It is a thing of shame. It brings shame to the family for a child to go to a public school. Never mind the fact that some private schools are worse than public schools, and parents still need to shell out their hard earned money on after school tutoring. Consequently, parents borrow to pay school fees rather than eat the humble pie and find their level. This will be covered in “My Children’s School is More Expensive Than Yours”.
Back to our beloved automobile. “You are what you drive” is the creed many live buy. A car is not simply a metal box that takes you from point “A” to “B” in safety and comfort, we believe your car defines who we are. People respond to you based on the car you drive. Your car can make a difference between being snubbed, tolerated or welcomed with open arms. Due to this societal pressure, the decision on which car to buy is hardly a rational one. At the spur of the moment, a family can decide to wipe out their savings to go buy that “befitting” automobile. Consequently, more often than not, buying a car also means going broke.
In deciding what car to buy, you first of all review what your friends and competitors are driving. You don’t want to be beaten in this one. If you cannot buy a new one, you go for a second hand. Your mechanic is a guru, no shaking. Rather than scale down and buy a new budget sedan (eg Toyota Yaris, Honda City, Hyundai Accent, Kia Rio etc) that will give us more than four blissful years of a mechanic free existence, we opt for a luxury class second hand car so as to belong and end up spending our weekends at the mechanic’s. If we cannot afford a budget sedan, instead of investing in our business while using a taxi to move around, we invest in a second hand car that matches our “status” or get a new car on hire purchase. The proceed of most financial breakthroughs are invariably spent on cars rather than reinvesting to grow our businesses.
I am not by any means attacking folks that drive luxury cars or second hand cars. I am addressing folks like us that wonder where their money went. I am addressing folks like us that need seed capital to start that business, but could not save even if their lives depended on it. For people that can afford it (that is, spend their profit, not their capital), there is nothing wrong with enjoying the fruits of your labour.
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I convinced myself some months back to trade in my 2007 Honda City for a 2010 Hyundai Sonata. There is nothing wrong with my car. I kissed goodbye to my regular mechanic ages ago. Apart from normal servicing, the car is all season. I needed a bigger car. End of story. If you ask me to give reasons, I will gladly do – my height, stability of the car, climate control, sound system, parking sensors, bla bla bla. I will not add that I catch myself sometimes feeling slightly ashamed when I pull into a car park littered with SUVs and luxury class cars. And lately too, it seems there is a new law in Nigeria that every family must have an SUV in its fleet. Back to my wish – when the money I expected failed to show up, I was sorely tempted to break my financial rules, liquidate some assets to acquire a liability. That is when the alarms went off. I had to pull myself over, and do a refresher on assets and liabilities. When my wife asked when I was picking the Sonata, I smiled.
When it comes to buying a car, one of the lies we tell ourselves to justify buying a model we have already made up our minds on, is the issue of second hand value. If you really think about it, it makes no sense, i.e. nonsense. Let’s take Honda Accord versus Hyundai Sonata. These two cars are classmates and go head to head in technology and performance. The main difference is the logo design (though both are H) and of course the price tag. They are about N2Million apart in price. Now, a second hand Honda Accord is more expensive than a second hand Hyundai Sonata. That is a fact. BUT, is that enough reason to sink an extra N2Million in a Honda Accord, with the hope of getting it back as second hand value? How much of the N2Miilion can you recover at sale? Is the price difference between a second hand Accord and Sonata N2Million? The answer is NO. So why sink in N2Million today, with the hope of getting part of it (less than half) back four years later. If you put the N2Million in a fixed deposit, you will turn it to more than N3Million in 4 years, depending on the rate. Which option makes more sense?
The reason we go for the Accord is more than second hand value, and we know it (the second hand value story is simply to make us feel better about spending so much more). The Accord is more flashy, and is regarded much more highly by our peers than a Sonata.
Again, is there anything wrong in driving a luxury car. If you can afford it, NO. I dreamt of driving a Range Rover as a 10 year old boy. It is a dream that will come true. However, there is a time and a season for the fulfillment of that dream. It is called delayed gratification. If I decide I must ride one today, I will need to rewrite my financial principles and kiss goodbye to my financial freedom.
Why do we take the decisions we do, when it comes to spending? It is complicated (I learned that phrase not long ago). Whenever a financial windfall gets into my hand, war breaks out in my soul. Needs and wants scream at the top of their voices. There is a thousand and one things to do with the money. If I have no previous plan on how to spend that money, I always regret when the last Naira leaves, and all that is left is the million naira question – where did the money go?
We have the funds we need to start what we need to do to get to the next level. If we misappropriate the funds that come into your hands, all that we have left is excuses when the need for those funds arises. What we are looking for is not lost. We simply have to look inside.
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Related posts:
- Spending to Impress – My Vacation is More Expensive Than Yours
- Changing Your Spending Habits
- Financial Consequences of Spending Choices
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March 8th, 2010 @ 3:56 am
I've been reading along for a while now. I just wanted to drop you a comment to say keep up the good work.
March 8th, 2010 @ 7:13 am
That was a very nice post. I am in far-away land, yankee. I am really pleased when I see more and more bloggers writing and feeding we Nigerians with very good advice.
One of the strategies I use for saving is called the 10-10. Not that everything must be 10, no, but rather that it may serve as a guide. Since I came here, my eyes have opened to how wasteful we are back home.
Top pu it briefly:
10% goes to retirement savings
10% goes to God (tithe for Christians,charity,the poor)
10% emergency money 'stashed away in some cool savings account
10% immediacy/project money in an easy to reach "under-bed" savings account
10% to keep your better half happy irrespective of how much he/she earns.
That leaves you to live on 50% but with peace of mind that some extremely important things are settled. This strategy may not be possible in every situation, so you can tailor it down to 5% or even 2.5% however,never ever skimp on God's 10%. It is a time tested source of financial freedom. You may not be able to afford 60,000 naira for savings, but irrespective of your salary you will ALWAYS have 10% for God.
March 8th, 2010 @ 6:26 pm
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March 8th, 2010 @ 8:38 pm
Hmmm I let out my breath at the end of the last sentence. Again another reminder of what oughts to do and what not to do. Thanks for this brilliant piece. It is not enough to just read and digest it but to do is the right thing to do. I know the 'its complicated' phrase too much.
March 14th, 2010 @ 12:00 am
@Osita,
Thanks a lot for your comments. I love your formula. It falls within the same ball park as mine. I live within 50% of my income. May not work for everyone, but for most, where there is a will, there is a way, as belt tightening is not a permanent situation, but a bus stop along the way to financial freedom, when you can afford whatever…
March 14th, 2010 @ 12:01 am
@Anka, thanks and thanks for your encouragement and feedback