Considering the purchase of a new car while the housing and equities markets plummet requires detailed knowledge of one’s financial position. In my case, I was considering the purchase of a 2008 BMW 335i sedan amidst a rise in foreclosures and a significant downward movement in the stock market. With two existing car loans still in repayment, which necessitates both cars to be fully insured, the addition of a third financed car along with the added insurance costs would bring my budget closer to being balanced. I generally prefer to have a surplus for my personal budget.
BMW rarely, if ever, offers a low interest rate like 0.9% on their vehicles. Assuming that the normal interest rate for my desired car is 4.9%, I calculate that I would save about 5000USD if I took up the 0.9% limited time interest rate offer. The competitive pricing offers, some under invoice, from several BMW dealers were also compelling. I heavily considered the purchase. I thought about the end of repayment in February 2009 for my 2004 Honda Civic and July 2009 for my 2004 Honda Accord. I wanted to believe that by cutting tiny financial excesses in my daily routine, I can create a sizable margin between my cash inflow and outflow while I make payments on three cars simultaneously.
By reviewing just the expenses that are charged on my credit cards, it seemed that the payments on a new car as well as the added insurance cost could easily fit within my budget. Unfortunately, I lose a lot of detail in my budget with all my cash transactions. I give myself a cash allowance, and I repeatedly exceed it, because I sometimes make unexpected yet necessary cash purchases. Not knowing how the cash is applied with the lack of financial controls over my cash spending made it difficult for me to evaluate my financial position and move forward with the car purchase.
I moved on from using Microsoft Excel to GnuCash to manage my accounting. To address the issues that I have with monitoring my cash transactions, I now make use of the “Cash in Wallet” account. I now collect my receipts, post the transactions to my ledger, and reconcile the amount of cash in my wallet with the corresponding account in my accounting software. I do this daily as to not allow the amount of work in maintaining my account from becoming insurmountable.
I now have a better view of my financial position. For example, I am able to see precisely how much I spend at Starbucks by looking up a particular expense account in my ledger. I can see how much of my monthly income is used on lunches and how much I spend on car maintenance over the year. Businesses use accounting practices to measure the health of a business. It seems natural that the same practice be applied to Me, Inc.