4 Financial Planning Tips for Car Owners

insurance car

Even though its value continues to depreciate from year to year, the car is an asset. Owning a car certainly requires someone to have good financial planning.
The existence of a car as an asset will certainly add to your net worth. However, as an asset, a car can be categorized as a personal asset or an investment.
When a car is only used for daily mobility, then its status becomes a personal asset. However, when a car is used to make money, such as transporting passengers, transporting merchandise, buying and selling it to showrooms or customers, the car will become an investment asset.
As is known, there are many costs for those who own a car.

Cars also need emergency funds

Ideally, a person should provide an emergency fund equal to at least 3 to 6 monthly expenses. Why? Because the emergency fund will be used to cover living expenses when the person concerned loses income.
So what is the form of an emergency fund for cars?
The older the car, the more frequent the replacement of its spare parts. Replacement of spare parts during periodic servicing raises unexpected costs that must be paid.
Call it an exhausting car battery, clutch lining, brakes, spark plugs, oil, and filters that must be replaced in a matter of kilometers. Not to mention, car owners are prone to the risk of having a flat tire in the middle of a trip, either because of less wind pressure or due to other accidents.  
Therefore, it is quite important of course to allocate funds for this need. It is not wrong to save at least 1% to 5% of monthly income for an emergency car fund. Just keep these funds in a savings account to keep them liquid.

Your total current assets should be 15% to 20% of your net worth

As explained above, the existence of a car which is an asset will add to your net worth. The net worth itself is obtained from the deduction between total assets and total debt.
The higher your net worth, the higher the percentage of current assets (savings, cash, and cash equivalents) that you must have.
Naturally, cars certainly need operational costs such as fuel costs, cleaning costs, minor service fees, heavy service fees, and taxes. That is why someone who owns a car must have sufficient cash, not only for emergency purposes but also for operations.
The ideal total current assets you should have is 15% to 20% of your net worth. If it is less than 15%, it is a sign that the amount is too small, but if it is more than 20% you are saving too much money in savings and investing less in the future.

The car must also be protected

The only thing that can protect you from the financial risk of damaging or losing your car is car insurance.
Broadly speaking, car insurance consists of all risk and total loss only (TLO). All risk will bear whatever risk occurs, including blisters on the original body by applicable regulations. Meanwhile, TLO covers the insurance costs when your car is lost, or is damaged, up to 70% of the car price.
TLO tends to be cheaper than all risks. However, the selection must be adjusted to the potential risks that will be experienced by the car owner.

If the car is still in installments, make sure the installments are by the income

For those of you who are in the middle of car installments, you may not know whether the amount of your car installments per month is too large or not.
How to measure it, of course, by knowing our debt service ratio (DSR). DSR shows the total debt installments we have in proportion to monthly income, not only car installments, but also credit card installments, and other credit if any.
To calculate the DSR value, you can compare the total amount of your installments with your monthly income. If the amount of car installments and other debts is still below 35% of your income, then the installments are still reasonable.
But if it's in excess, the sign is too big. That means you have to reset your debt payments, either by extending the loan tenor or by paying off other debts other than high-interest car loans.
Those are the four financial planning tips for the car owner. Especially for those who buy a car on credit, of course, you will be given car insurance from a credit or multi-finance institution, but don't forget, you also have to be protected with life insurance.

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