Why Minor Scratches On Car Makes Your Blood Boil? Simple Formula To Grow Wealth!

On an apparently unrelated note, let me begin with talking about the iPhones. In recent months, many people around me have bought iPhones. But for most of them, it’s a purchase equivalent to their 1.5 - 3 months of income. Back in the day, when I didn’t have a shiny scalp, I too used to buy expensive phones. Early on in my career, I had an iPhone 3GS, and later, an iPhone 5S. At the time, they cost me a month of my salary. Now, though, it comes across as reckless expenditure.

This got me to go back to listening to the Psychology of Money to help me curate my thoughts before I could offer any advice, which they wouldn’t follow. So, I listened to the book once more during my commute.

Psychology Of Money

One story, the author Morgan Housel narrates in the book is about fancy cars. He talks about the time when he was a valet driver. One of the regular visitors once showed up in a Porsche. So, our author gave a few compliments to the owner. Then, after a few months, the Porsche owner showed up in his old Honda. Then, he continued to show up in his regular car. So, one day, Morgan asked why the visitor wasn’t bringing his Porsche. The owner replied, “Oh, the Porsche! The bank repossessed it.” As in, the buyer couldn’t continue paying the instalments. So, the bank took the car to recover the loss.

Wealth Is What You Don’t See

As long as this customer was coming in a Porsche, it seemed like he must be a very wealthy man. But when the car was no longer in his possession, it came as a revelation to the author that this “rich” visitor actually couldn’t even afford to pay the car’s EMIs. Some people drive cars worth a crore, but it may not even be 1% of their net worth. Meanwhile, others manage to buy a car worth 20-25 lakhs on credit and loans while their net worth is negative.

We don’t have our net worth tattooed across our foreheads. So, when we see expensive cars, we infer that the person riding in the car must also be rich. On this issue, the author says:

 

Wealth is what you don’t see. It’s not the car you bought, but the car you could have bought.

Gods Must Be Crazy — ENVY

In 1980, a movie titled ‘Gods Must Be Crazy’ was released. It depicted life in a tribal African village where people lived happily. They were so backward in their tech, that when an aeroplane flew overhead, they thought that God must be having a bad stomach. When it rained heavily, they thought that the Gods probably drank too much water.

Nobody in their community owned anything. The sand, trees, air, water — everything belonged to everyone because everything was infinite. There was no concept of 'mine' and 'yours.'

Then one day, someone flying in an aeroplane throws an empty glass bottle of cold drink, which lands in the village sands. They had never seen something that is clear like water but hard as a rock. Some wanted to turn it into a flute, some wanted to use it as a rolling pin, some wanted to use it to make chutney. Suddenly, everyone wanted it; and there was only one of it. So, in a village where nobody ever got angry, they start fighting over a bottle.

Whenever something seems limited to us, it triggers envy in us towards those who have it. To keep this envy in check, we often try to make others feel this fire of envy. Even then, the fire within us doesn’t; instead, it grows. If we try to find what’s wrong at other people’s weddings, it’s natural for others to find faults at our functions. So, no matter how much we spend, guests will always find something wrong at our own events.

Money You Don’t Have…

This reminds me of a quote I heard a long time ago:

 

We often buy things we don’t need (like fancy dresses, big home, expensive cars, etc.)

With money we don’t have (with credit card or loan)

To impress people we don’t even like (like those who are anyways going to try and find fault in us).

We keep taking on huge debt and the problem only keeps getting worse.

Say, for instance, if the cheapest car in your office is a Creta, you might feel a little embarrassed bringing a small car to your workplace. So, out of embarrassment, we tend to stretch our budget to buy a powerful petrol-automatic car, which, may be, costs Rs. 20.0 lakh. Then, when we realise it only gives a mileage of 6.0kmpl, we start looking for a CNG option to contain the costs or reduce our usage.

Once the usage drops significantly, even a small scratch becomes a cause for big arguments and fights. But the scratch is not the cause of that agony. The real reason is that we bought a car beyond our means. The EMI, petrol, maintenance costs were already high, and now the unexpected dent and paint costs are adding up.

Those who purchase a car within their budget and regularly drive it know that all these are part of the ownership experience. If the car runs, scratches and dents will come sooner or later. You'll have to fuel it, do maintenance and repairs and pay for parking and tolls too. We can't run away from these expenses.

In the first week of getting my new car, the side mirror rubbed into a truck. I just hoped it wasn’t broken, but it had only twisted outward. I only carefully observed that scratch after 2 weeks when I had to get the car serviced. My car is so cheap that such small scratches don’t even bother me enough to care to look at the damage.

Government, Capitalism, Marketing, Social Media

Now, if you want to challenge the system by changing some of your buying decisions, it's very difficult. The government, capitalism, marketing and social media together constantly push you to spend beyond your means.

The Government

Think of the government as a for-profit company. The only difference is that we choose its leadership every five years. The government's profit comes from taxes. There's a tax on the sale of every product or service and there are taxes on the income of every individual and corporations. The government deploys this profit in areas that improve the probability of future tax growth, just like businesses reinvest their profits. Only the approach to achieve this goal changes with the change in leadership.

Regardless of who's in power, the goal remains to collect as much tax as possible without causing public outrage. If a policy is to be implemented that they know will cause anguish in the general public, they ensure it doesn't affect too many people to the extent that it threatens their hold on power. And if possible, the effect should be such that the public doesn't even realise it.

Let's take an example: the ban on diesel cars in Delhi NCR. You probably already know that diesel cars over 10 years old are banned from plying in Delhi and surrounding regions. For petrol and CNG cars, this limit is 15 years. My Beat diesel, which has already covered around 1.25 lakh kilometres and is still under 10 years old, still drives like it’s barely a few years old. It still gives me an efficiency of 24kmpl and it is good for another 1 lakh kilometres. Even my car's registration certificate has an expiry of 15 years. It means that when I purchased the car, I had a contract with the government that I should be allowed to drive this vehicle for at least 15 years. But they are imposing fines for driving it in winters, well before it’s even 10 years old.

Firstly, there's no such law in the Motor Vehicle Act, but if there was an amendment passed that I might not be aware of, it certainly doesn’t apply to two-wheelers. And we’ve had BS3 2-wheelers on sale as late as 2017. No matter how old your 2-wheeler is, you can renew its RC and keep using it. This is because there are more two-wheeler owners in the country, and if they face problems, it might affect how they vote.

But car owners, especially a small number of car owners, can handle the trouble without impacting the result of an election. The result is an increase in car sales, and thus, tax collection.

The government has played a psychological game here too. If people around you are buying new cars, it creates the envy issue. On top of that, due to fear of fines, you are likely to start thinking of buying a new car before it’s no longer allowed to run on Delhi roads. No matter how much you try to avoid it, once the new-car bug latches on, it doesn't go away. I am usually very value-conscious and objective, but I also fell into this trap. In January, I got a warning challan for driving my BS4 diesel car, and within 15 days, I had a new car at home.

This made the car makers happy.

This made the car sellers happy.

This made the government happy.

And it even made me happy. Even though I knew that I was being played.

It’s a pretty neat mind trick they played, huh!

Capitalism & Marketing

Capitalism and marketing are quite interdependent. Or you could say that marketing enables capitalism.

Thousands of years ago, kings and emperors wore gold and silver jewellery with precious stones like diamonds. The common farmers or workers wore clothes according to their status. How much money one had was visible through their attire. Capitalism has turned this tradition upside down.

Today, those who are truly wealthy spend a tiny fraction of their earnings on luxuries. They invest the rest in production, industrialization or development. The products or services that result from this investment are then marketed to the common people as a luxurious lifestyle through marketing materials. The more we get trapped in their lifestyle marketing web, the richer they become, while the poor sink deeper under the burden of loans and interest.

Forget the caste and religion divide. That's just the cover story. The real divide happening among us is due to capitalism and the brilliant marketing, which is creating a deeper gap between the wealthy and the common man. The longer you delay in overcoming this barrier, the harder it will become for you to ever switch to the other side.

Social Media

Finally, we come to the issue of social media. In the past, if someone in my social circle bought an expensive car, there were three ways for me to find out:

1. They would tell me themselves.
2. I would see it myself while they were entering or exiting the parking lot.
3. Or a common friend would inform me.

So, the things that we consider as indicators of financial status, such as a big car, a big house, an expensive phone, were usually not on display. But now, on Instagram, Facebook, WhatsApp, someone is showing off their new phone or car every day.

Earlier, I used to feel sorry for someone taking a mirror selfie because it seemed like they didn't have anyone in their life to click a photo for them. Then I found out that they weren't showing their photo, they were showing the Apple logo.

The thing is, I'm not on social media, so I don't know about trends. Beyond my work requirements, I don't even use WhatsApp. And it's not like I recently stopped using social media. The only social network I've used long enough is Orkut.

I don't feel the pressure of showing off. That's why I happily drive my MG Comet and my second-hand vehicles like Honda Navi and Tata Nano. Many people would feel embarrassed driving such small cars. Because the lifestyle they have projected on social media doesn't align with such cheap and small vehicles. Don't worry, I have a solution to this problem also.

How To Choose A Car?

Getting rich and staying rich are tasks that require two completely different sets of skills. If you keep trying to look rich, you won't be able to stay rich.

Do you remember this quote from earlier in this article?

 

Wealth is not the car you bought; it’s the car you could’ve bought.

If you can afford a Rs. 10.0 lakh car, then buy one worth Rs. 8.0 lakh. If you can afford a Rs. 20.0 lakh car, then go for one worth Rs. 15.0 lakhs. Leave the rest of the money in a piggy bank for fuel, accidental repairs and maintenance.

Apart from these, there are 3 more options:

1. Variety In Cars

Now, there might be some people who enjoy driving a different car every day. So, bhai, please become a valet driver at a hotel. You'll get to drive a shiny new car every day and get paid for doing this. You’ll also get the chance to take selfies with a different car every day for the Gram.

2. Design

Some people really like the designs of certain cars and motorcycles. For example, I love the designs of the Ducati Scrambler, Supersport and Bonneville Bobber. Even if I bought one of these, I would only get to see them once or twice a day at most. So, I decided to buy scale models of these motorcycles. Now, I can admire their designs throughout the day while spending less money than a tank full of petrol in the real thing.

Similarly, if you want to appreciate the design of a car, buying an expensive scale model is still cheaper than buying an actual bargain-basement car.

3. Rare Requirement

Big boot, high good ground clearance, 4WD, 7-seater — these are some of the requirements that don't come into daily use but they do impact our car buying decisions.

If we only need such features 1 - 2 times a year, then, it's better to rent a suitable vehicle when needed rather than buying a bigger and more expensive car. I agree that having our own car comes with convenience and a kind of enjoyment. However, overall, renting will be more cost-effective.

Moreover, if I need a 7-seater car only twice a year and I buy an Innova for that purpose, then I'll have to haul that heavy car for the rest of the year. Driving a big car in city traffic is also quite stressful and finding a suitable parking space for a big car is also sometimes challenging. Moreover, throughout the ownership, owning a big car will also mean spending a lot more on fuel and maintenance.

Formula To Get Wealthier

Social Media

The most important first step you have to take is to cut down on social media usage. Stop using social media completely if possible. It’s important to reduce the feeling of envy within. I agree that this is a difficult step for many among us but it’s also non-negotiable.

Deciding Price Range Limit

In my opinion, spending 3-6 months' worth of household income on a family car is reasonable. A car bought within this range will never feel like a burden even if it occasionally asks for running repairs.

Rich Vs Wealthy

We know what ‘rich’ means but the meaning of ‘wealthy’ is a little murky. In fact, I haven't found a good definition of wealth or wealthy yet. So, I made one myself. Let me know if you agree with this definition or not.

To determine who is rich, just add up their income, bank balance and assets that can be liquidated, based on their current market valuation. You'll get a number that will tell you who is rich and who is richer. But running in this race is stupid.

Why do we need money after all?

 

To do what we want, whenever we want, and for as long as we want.

In my view, wealth is time.

 

The TIME to do what we want, whenever we want, and for as long as we want.

If you were to quit your current job or business today, then without compromising your standard of living, for how many days, weeks, months or years could you survive? That’s wealth.

If one person earns Rs. 10.0 lakh per month, but Rs. 8.0 lakh go towards supporting his lifestyle. Another person earns Rs. 1.0 lakh per month, and his monthly expenses are only Rs. 50,000. Then, the first person is richer, but the second person is wealthier even with less income. Because every month, he’s adding 1 month to his wealth.

You have to participate in THIS race. Here, you can create wealth without earning more money.

There are two ways to increase wealth:

• First, increase your income.
• Second, control your expenses.

And if you want, you can do both.

I don't have a magic wand to increase income, but for the second technique, you can follow Pareto’s principle. Pareto's 80-20 principle is applicable in almost all aspects of life. This principle says that you'll get 80% of results with 20% of effort. And if you want to capture the final 20% of results, you'll have to put in 80% effort for that.

In every situation, it doesn’t exactly follow the 80-20 rule, but mostly you'll see something similar. And in the automobile sector, you can easily see this. At a minimal cost, you can buy a car that will meet most of your needs. Beyond that, we're only spending on wants. And in many cases, compromising on value too.

Catch 22

In this same book, Morgan Housel tells a story about the author of the Catch 22 novel, Joseph Heller. Heller's Catch 22 was very popular. Naturally, with its sales, Mr. Heller became quite wealthy. Now, at a rich person’s party, someone walked up to him and asked:

 

Mr. Heller, did you know that the host of this party earned more yesterday than you have made so far from the sales of your novel?

To this, Heller replied:

 

Still, I have something he’ll never have.

The unknown person:

 

What’s that?

Heller:

 

Enough.

So, to create wealth, you must exercise restraint. And will that restraint come from? From having 'enough'.

I’ll take my example. Recently, we were looking for a replacement for our Beat diesel.

Thank you, sarkar. :-(

Cars from Spresso AMT to City V automatic were in our consideration. I really liked the City, but it went way beyond my requirements, and stretching the budget didn’t feel right either. Plus, after years of driving a turbo engine, I wasn't comfortable with the performance of non-turbo engines up to 1.2L displacement. Still, I was leaning towards buying the Nios Magna AMT.

Then we heard about some discounts on the MG Comet. So, we thought of checking it out. The city performance turned out to be great, but the highway cruising ability was barely adequate. With the discounts, it seemed like a good option that was meeting most of our needs with a much smaller total ownership cost. Buying this didn't require paying extra GST, registration costs, road tax or additional taxes on fuel like petrol, diesel or CNG.

Thank you, sarkar. :-)

You just have to keep following the 80-20 principle. Over time, you'll gain control over expenses, and your wealth will increase.

-ve Wealth

The concept of negative wealth sounds a bit strange because I'm measuring wealth as ‘Time’. because, even if you stop working, the bank will still come knocking on your door asking for repayment. How many days do you think you’ll have to work to repay your active loans? To that number add the number of days of earning required to pay for subsistence like food, utilities, medical treatment, etc. Remember this. That’s your wealth.

Acceptance

If your current wealth is negative and you want to increase your wealth, the first step is to accept this problem.

Let me start with myself. Excluding any family inheritance and income from other family members, I have a current wealth of negative 4 months. And my realistic goal is to increase it to 2 years.

You too should calculate your current wealth level and share your goal with others to make a public commitment.

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Summary

So let's quickly recap the important points of this article.

If you see someone arguing over minor scratches or debating to save 100-50 rupees on highway toll or parking charges, you should know that they have bought a car they couldn’t afford. Don't let your friends and family preferences dictate your car buying decision; choose a car based on your needs and budget, not on what people around you are buying.

Try to observe how government policies, capitalism, marketing and social media manipulate behaviour. Be mindful that these are just tools that can be used positively or negatively, like a hammer that can build or destroy. You have to learn how wealthy individuals use these tools and strive to use them in a similar manner.

Try to find solutions to problems around you with the 80-20 formula. And, imbibe the concept of 'Enough' in your personality. Measure wealth not in bank balances or material possessions but in time.

Try to make decisions based on value, and not emotions. We also provide car comparisons and variant explained videos and articles to assist you with this analytical decision making.

However, sometimes stretching your budget to buy a more expensive car is the better decision. If you want to know when it's appropriate to buy an expensive car instead of a cheaper one, let us know in the comments.

Besides the information covered in this article, you should consider reading the book Psychology of Money. In this article, I’ve only touched upon 2-3% of the topics covered in the book.

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Link to Psychology Of Money book on Flipkart:

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Did you find this article helpful? Please share in the comments section below. If you know someone who’s caught up in the maze of capitalism, marketing and social media, then consider sharing this article with them. I hope that you and they find the information contained in this article helpful and it helps them free themselves and move towards having a positive wealth.

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