Let me tell you the story of how a flat tire affected my finances. In the end, I share how I could use a sports car literally by paying nothing for it.
I own a Ford Mustang, but I don’t drive it much, especially during this pandemic period. I work from home. My wife works from home too since the stay-at-home order started in March 2020. So we have two cars parked in our garage. And most of the time, we drive our hybrid Volvo as it has lower mileage and uses less fuel.
So I rent out the Mustang through Turo (an Airbnb-like platform for cars). I started this side business last year. During summertime, my convertible Mustang is exceptionally popular. I have got many guests who rent my car to tour around Oregon. Some of them are Portlanders who would enjoy a sports car with the roof down to take to the coasts. Many are from other states who visit Portland for business or leisure.
Last week, a guest returned my Mustang before heading to the airport. The car was fine. But the next day, I found a flat tire.
I had to fix it immediately because there would be another guest coming for the car the following day. So I pumped the tire with my portable inflator and drove it to the Ford service centre. They found a nail and patched the hole, and didn’t charge me anything for the fix since I got my regular service done there. (Thank you, Damerow Ford!)
The following morning, a husband picked up my car happily. But a moment later, he texted me the following picture:
OOOPS! The same tire was still leaking.
I offered to let him change the tire, and I would reimburse the costs.
But due to time constraint, he just turned back and returned the Mustang. Then I had to call up Turo to cancel the trip so my customer could get a full refund. It is a small inconvenience for the renter and his wife. He might be disappointed as he wished to bring his wife to the beach on a convertible.
Due to a leaking tire, we had to cancel the trip, and I lost the income of about US$150.
A Flat Tire Affect Your Finances Immensely
Frankly, it is not a big deal. But the incident got me associating it to personal finance. I regularly use the metaphor of a reliable car representing someone’s finances. A car runs on four wheels. The wheels symbolise incomes, expenses, assets and liabilities. To get the car to run fast and stable, you need all four wheels to run smoothly. The money-smart people take good care of each wheel so that they can get to the destination called financial success.
When you run on a flat tire, you hear a grinding sound coming from your car. It might start slowing down, and your steering will feel off. If you continue to drive with a flat tire, it not only damages your vehicle, but it also compromises your safety.
When my Mustang got a flat tire, the “asset wheel” was off. I got to fix it fast because it affects the potential income. Similarly, if you acquire a terrible asset (or rather a liability), it impacts your income.
For example, if you bought a house that you won’t be staying in, and you couldn’t find a tenant for an extended period, your cash flow is directly affected. Not only that you don’t derive any revenue from the property, but you also need to fork out additional expenses for the mortgage commitment and property taxes. So what could have been an extra income, had turned into a recurring cost. Subsequently, a supposedly income-generating asset became a money-sucking liability.
The moral of the story is that you would want to keep good assets with you. Review your portfolio periodically. If you find non-functioning assets and liabilities, repair it or get rid of it if necessary. When you have a punctured tire, you will get it fixed as soon as possible. I wish you also have the same mentality regarding your finances. If there is an unused gym membership, why not discard it now? If you find a terrible stock in your portfolio that is making losses year after year, why not sell it and use the fund to purchase a productive company’s share?
To accumulate wealth effectively, optimise the functionality of these four wheels: incomes, expenses, assets and liabilities.
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As promised, here are more details about how I get to use the Mustang for a very minimal cost.
How I Get to Use the Mustang Literally for Free
I bought the Mustang on full loan, without any down payment. (Refer this article for more info about how you should pay for your car purchase)
The total instalments in a year are around US$5267. By renting it out through Turo, I got a net operating cash flow of $2460 in 2019 after paying Turo fees.
However, that business operation of car rental resulted in a loss of $2428 in the year. The reason is that I got to claim the maintenance of the vehicle based on the mileage driven by guests. The USA IRS (a.k.a. income tax) allows 58 cents per mile deduction for the business use of a car.
Although in the book, I recorded a loss. But I have an advantage of using the loss to offset my other business income in the US. So I would pay less taxes for other businesses that are profitable.
As a result, I get to use my Mustang most of the time for a meagre cost. I could use it about 300 days out of the year. In 2019, my real cost of owning a sports car could be as little as $2000. In fact, I would be able to recoup this $2000 from the car equity when I sell it in the future.
So considering all these “benefits”, I get to use a sports car literally for free.
I just demonstrated the power of being financially savvy. You too, can benefit tremendously when you acquire the wisdom.
If you think this trick is awesome, check out the top three money tips I share on the following online training:
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