Is a car an asset or a liability?
In this article, we dissect this million-dollar question.
If you own a car, especially an expensive one, it is inevitable that this major financial question bothers your conscience at least occasionally, or maybe pretty much every day if you can barely afford your car payments.
Understandably so, a car is one of the major purchases in every adult’s life. The reason why so many people are confused as to whether a car is an asset or a liability is the fact there are so many expenses associated with buying and owning a car.
For most people, buying a car means having to qualify for and make the car loan payments each month, in the next five, seven, or eight years. Very rarely that a person actually buys a brand-new car in cash, which means that most people are actually losing money when financing a car loan due to the fact that they would have paid more than the actual value of the car, thanks to compounding interest!
And even if you paid cash for your car, you will always be tied-up with the perpetual costs of owning a car like:
- Car insurance
- Repairs and maintenance
- Liquid and lube
So, does the fact that you have to keep on spending money on your car makes it a liability, or is your beloved car still an asset in your book despite the monthly costs of ownership?
To answer this, we first have to learn what an asset is!
So, what is an Asset?
In accounting terms, assets are defined as:
“Resources that are owned by an entity that has future economic value that can be measured and expressed in dollars. Examples are cash, accounts receivables, investments, inventories, supplies, land, building, equipment, and vehicles.”
So, an asset can then be defined as any item that has a dollar value and that be turned into cash or can yield cash flows in the future.
It is any resource you own that can easily be converted to cash in the future. To understand what an asset really is, imagine you bought a pack of rice and a rice cooker to cook it. Though you will get some sort of direct satisfaction from eating the rice, you, of course, would not be able to eat the rice cooker; once you finish eating the rice, the rice cooker still remains in your possession, and you can decide to sell out the rice cooker in the future.
In this scenario, the rice cooker is the asset because it can easily be converted to cash. An asset is, therefore, is any item at hand that has a cash value, and that can bring forth cash or profits in the future.
By the accounting definition of what an asset is, a car or a vehicle can then easily be an asset!
But then, what kind of asset is a car really is?
In personal finance, an asset is defined as anything that brings cash in your pocket, and a liability is anything that takes away cash from your pocket (or bank account).
So, is your car really an asset or just a liability?
The answer is it depends!
It depends as to what type of car you’re driving, whether or not it increases in value over time (most cars don’t), whether or not you’re losing money by driving and maintaining it, whether or not it your car ownership makes you money.
Why is Car an Asset?
By most people’s standards, a car is an asset. This is because “material possessions” are considered an “asset” by most. A car, whether it sucks away money or not is automatically considered an asset by most people.
This is because a car is (superficially) something that you “own”. Come to think of it, it does have value, and can easily be converted to cash, regardless of whether or not you’re making a profit from the transaction, as again, most people who have sold their cars after a couple of years of ownership, lost money in the sale.
If you define an asset as any material possession that you own, then anything you own is an asset, yes consider all the junk; because they all have value when liquidated but the fact that car ownership eats away money every month doesn’t really make it a solid asset because you’re losing money every month that you “own” it.
If a car is a money-losing asset, is it therefor a liability? Well, not quite!
What type of Asset is a car?
While you may still be convinced that your car is indeed an asset, you might be wondering as to what type of asset is a car.
As I mentioned above, a car is an asset by many people’s standards because people define assets as anything that they possess if you just own it and it’s not making you money either directly or indirectly, the fact remains that at the same time your car ownership is a liability due to the fact that you’re losing money simply by owning a money-eating “asset”
So, what type of asset is a car really is?
If you ask most financial gurus, they will immediately rule out cars as a liability but if you remember the accounting definition of what an asset is, a car is actually considered a fixed asset that can be sold in the future and turned into cash.
This then makes a car both an asset and a liability. It is a different kind of asset, one that costs money to own and one that depreciates in value over time, thus a depreciating asset!
Most cars depreciate in value over time and most cars eat away money each month, the only way you can consider your car a true asset is if it can help you improve your economic well-being either directly or indirectly, in other words, an asset has the ability to help you put in money in your pocket!
How to Make a Car an Asset
As mentioned, depending on what type of car you’re driving and how you use your car, it can be both an asset and a liability, the only way you can make sure that your car is an asset is when it actually helps you make money to improve your economic standing.
An expensive car is not an asset if it does not make you money or if it does not increase in value over time, especially if you can barely afford it.
Most people who finance their cars would owe more than the actual market value of the car, if you’re already in this situation and you find yourself barely scraping by, you have to find ways on how you could turn your car into an asset by making it make money for you.
One important thing you should do if you could barely afford your car payments is to consider to “downsize” into a more affordable car and try to sell or dispose of a money-eating monster, disguised as an asset.
If you own your car outright, you can think of ways on how you can make money with your car, so instead of it simply sucking-away money in insurance payments and maintenance, it actually puts in money in your pocket.
This is the true definition of what a solid asset is and it is your duty, as an economic being to turn your car into a money-pulling asset, instead of just a depreciating asset that you will sell at a loss in the future.
Ways to Make Money with Your Car
There are a lot of ways to make money with your car, so instead of it simply seating in your driveway on your off days, you can turn it into a money-making machine on your downtime so it can pay for its own costs and bring you some extra income on the side.
Here are a few ways to make money in your car.
- Accept Print Ads on Your Car
An easy way to make money with your car is to have companies advertise on your car. Yes, your car is mobile ad space, this is especially effective if you live in a decent-sized city.
In the US and Canada, there are advertising companies that are always on the lookout for car owners who are willing to put vinyl ads on their cars. If this is not available where you live, you can approach a print company who wraps cars and have them design a “Your Ad Here” sign on your car with your phone number on it.
Potential advertisers will call you for pricing and it is up to you to cut a fair deal that works for you and your ad client.
Carvertise (US), for example, pays car owners between $300 – $1,200 a month to put in advertisements on their cars.
There are other car advertising companies that you can take a look at if you’re in the US and depending on which country you live at, there may be some local versions of such, if none, you can always strike a deal with advertisers directly.
- Rent Out Your Car
Renting your car out is another easy way to make money with your car. There is a lot of peer to peer car rental marketplaces that have sprung into existence in the last couple of years, the first one is Turo.
While you can rent out your car directly, this is a bit tricky as you’re actually going to allow someone else to drive your car, to protect yourself, you’re better off signing up as an inventory supplier for car peer to peer car rental agencies than renting directly because of the extra insurance protection these companies offer that you will not have when renting directly to customers.
- Deliver with Your Car
Another good way that you can make money with your car is by delivering stuff to people as a side gig. You can apply to become a self-employed delivery driver for Postmates, Skip the Dishes, UberEats, and the like.
This is something you can do part-time on the weekends or on your off days and of course, it doesn’t have to be a chore.
- Become a Driving Instructor
Another lucrative way to make money with your car is to teach other people how to drive as a driving instructor.
Since you already have a car and you are looking to turn your car into an asset, you can use your car to teach driving skills to people.
Driving skills is especially important in North America as most families have a car and every adult is expected to learn how to drive so they do not have to wait as to when their spouses are available to drive for them.
- Drive for Ride Share or Ride Hail Companies
If you love driving your car around, why not make money driving for ride-hailing companies like Uber, Grab, and TappCar?
These companies pay private car owners to make money driving their own cars helping other people go from point A to point B.
If you live in a major city, I’m sure you’re familiar with these companies, all of these companies have apps that you can download on your phone and make yourself available for business.
- Haul Stuff for People
Yet another way to make money with your car is to offer hauling services, this may not be possible if you own a sedan but if you own a van or a truck, then make use of that to haul stuff for people and get paid for it!
You can help people move stuff when moving from one house, or apartment to another.
If you have a truck, then you can offer junk hauling services in your locality, this, of course, may not appear sexy to you but if you’re not aware of it yet, 1-800-GOT-JUNK started exactly this way.
- Turn Your Vehicle into A “School Bus”
This is lucrative if your vehicle has a lot of seats and can accommodate a bunch of students at the same time. If you live in a neighborhood where local school buses are a luxury, you can approach parents or schools and offer “school bus” services for kids in schools without school bus services.
It’s especially helpful for families who don’t own a car or whose schedules make it near impossible to show up on time in picking up their kids from school.
This stint is something that you can turn into a full-time income. I remember, once when we lived near a private school which is not being serviced by school buses. Private individuals who own vans turned their vans into school buses to do exactly this and they’ve been doing it on a full-time basis, hauling kids to and from their homes and school, five times a week!
- Organize Trips and Excursions
If you live in a drivable range of tourists spots, organizing trips and excursions is a very lucrative business opportunity that you can do once or twice a week using what you already have, like the school bus stint, this one requires a bigger sized vehicle to be worthwhile as a sedan may not bring your justifiable income.
A car is an asset but if you lose money by owning it, it can easily turn into a liability, the smart way to own a car is to use it for business or a job, this way you get to enjoy your car while earning money from it at the same.
If you could avoid it though, try buying a car that you can actually afford because it doesn’t really make sense to enslave your car at a job or jobs you hate just to make your car, rent, or mortgage payments.
For me, a car is a tool. I buy a car for its use, not to show it off to people who could care less as to what I drive. Do not buy a car to impress people who don’t really care about you. Instead buy a decent car that you can afford. The whole purpose of having your own car is to have a vehicle that drives you from point A to point B.
Cars are depreciating assets, investing your hard-earned money on cars is counter-productive and could hurt your financial future.
I hope this article was able to shed some light and may be beneficial in helping you become wealthier by not throwing away money on cars.
Buy cars for its utility not because of what it makes you feel or how you want others to perceive you. I know this is something hard to resist, especially for us men but if you’re not already wealthy and financially free, your future is much more important than a car that you buy for showboating.