Ask Paul: We feel guilty about taking out a loan for a new car


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We have nothing to complain about. Now in retirement, we are in our mid-50s, (mostly) debt free, own our home, have $48,000 in shares, another $23,000 in managed funds and $22,000 with a peer-to-peer lender across one-month and three-year and five-year terms.

Our income is from a Commonwealth pension, which leaves a good positive balance in our budget fortnightly after expenses and bill-paying reserves.

We regularly buy additional shares in currently held companies whenever their price or performance becomes attractive. But we have recently purchased a new car (the worst car we can bear to be seen in).

ask paul clitheroe where should i invest property shares

Since inception, we've hit the debt with a good deposit and extra fortnightly repayments (requires $283, we pay $500 a fortnight) and currently owe $17,000 at 5.99% with about two years to run.

We have just put another $500 into one of our company holdings, but feel a little guilty not putting it towards the car loan instead.

We understand the principle of paying non-deductible debt quickly, but how should we resolve our guilty pleasure in the future?

Should we treat exclusively paying off the car as an "investment", positive to our long-term benefit, the same way as buying shares is? - Kerry and Vicki

You two are a hoot! You really can't be Australians if you are not complaining. Surveys show we are the world's biggest whingers.

"Our health system is not good enough" - apart from being the best in the world.

"We don't earn enough" - apart from being one of the wealthiest people on the planet, and so on. So I am delighted to hear you can't complain.

I also laughed at your comment about buying the worst car you can bear to be seen in.

That fits nicely with my own saying: "Buy the cheapest car your ego can live with."

Commonwealth pensions are a wonderful asset and give you income certainty.

Given you are running a surplus budget and you have good assets, I am going to officially absolve you of all financial sins and hereby remove your "guilt syndrome".

Sure, you are right. Repaying personal debt is the way to go, but you are not wasting the money, you are investing it.

Repeat "We will keep investing sensibly and stick to our budget" three times and all is forgiven with the car.

You have bought the cheapest you can live with. What more can you do?

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Matthew Stuckings
December 4, 2019 4.44pm

Are you mad, Paul? Borrowing money for a depreciating "investment" is usually always a bad idea unless it's for something you can't live without and there is no other way of obtaining it. I reckon they should be wiping out the debt before doing anything else, and resolving to pay cash for any further car purchases.

Jill Barwick
December 4, 2019 10.50pm

Matthew. Paul has to be diplomatic. The couple confessed to the debt. Their penance from Paul is to say 3 Hail Mary's.

Mark Young
December 16, 2019 9.55pm

It's an investment if said cash which would have been used to purchase the car is invested and returns more than 5.99%.

5.99% is the interest rate they are paying for the loan. Most blue chip shares are returning up to 10% and more so I would say it's a smart investment! There, that should help ease the guilt!