Mana's ute: finance or scooter and bus?
Mana is 19, a first-year apprentice earning $52,000 gross, about $42,800 take-home after tax and KiwiSaver. He has $4,000 in savings, $1,800 owing on a credit card at 22.95%, and pays $180 a week board. He wants an $18,500 ute for work and weekends.
The dealer offers 11.9% p.a. finance over four years with a $250 establishment fee and $8 monthly account fee. Insurance is $1,450 a year, registration $700 a year, fuel $90 a week, and maintenance about $1,200 a year. The ute would let him take extra weekend jobs worth about $120 a week before $30 of fuel.
Alternative: keep using the bus ($30 a week) and buy a $3,500 scooter with savings. Scooter insurance is $420 a year, registration $300 a year, fuel $15 a week, and maintenance $500 a year. He could put $150 a week into savings. His goal is to clear the credit card and build a $5,000 emergency fund within 18 months.
1. Calculate the weekly finance and running cost of the ute. Then calculate the net weekly cost after the extra weekend job income. Compare this with the scooter plus bus option.
Read the worked answer
Ute finance: amount financed = $18,500 + $250 = $18,750. At 11.9% p.a. over 48 months, the monthly payment is about $493. Add the $8 account fee = $501 a month, or $501 × 12 ÷ 52 = $115.62 a week.
Running costs:
- Insurance $1,450 ÷ 52 = $27.88
- Registration $700 ÷ 52 = $13.46
- Fuel $90.00
- Maintenance $1,200 ÷ 52 = $23.08
- Total running = $154.42 a week.
Total ute cost = $115.62 + $154.42 = $270.04 a week. Extra job income is $120, but it uses $30 of fuel, so net extra income = $90. Net weekly cost after extra income = $270.04 − $90 = $180.04.
Scooter plus bus:
- Bus $30.00
- Scooter insurance $420 ÷ 52 = $8.08
- Registration $300 ÷ 52 = $5.77
- Fuel $15.00
- Maintenance $500 ÷ 52 = $9.62
- Total = $68.47 a week.
The ute costs about $111.57 a week more than the scooter/bus option, even after the extra job income.
2. Using a weekly budget, assess whether Mana can clear the credit card and build a $5,000 emergency fund within 18 months if he buys the ute. State any assumptions.
Read the worked answer
Take-home pay = $42,800 ÷ 52 = $823.08 a week. Known outgoings with the ute: board $180 + net ute cost $180.04 = $360.04. This leaves $463.04 before food, phone, clothing and other living costs. Assume those are $250 a week; then $213.04 remains.
Goals: credit card $1,800. At 22.95%, minimum payments may be about $45–$55 a week; using $50 leaves $163.04. Emergency fund $5,000 ÷ 78 weeks = $64.10 a week. After that, about $98.94 a week remains. So on these assumptions, yes, the goals are mathematically possible.
But the margin is thin. The ute assumes $120 of weekend jobs every week; if jobs are missed, net cost rises by up to $90 a week. The credit card interest adds cost, and the ute will depreciate. With the scooter option, weekly cost is $68.47 instead of $180.04; that frees about $111.57 a week, making the goals much safer and allowing a larger emergency buffer.
3. Recommend what Mana should do. Justify using interest cost, depreciation, risk, and his goals. Include one practical action.
Read the worked answer
Recommendation: do not buy the $18,500 ute now. Buy the $3,500 scooter, keep using the bus, clear the credit card, and build the $5,000 emergency fund. Revisit a cheaper ute (around $8,000–$10,000) after 18 months, once the card is cleared and the fund is in place.
Reasons:
- Interest: the ute finance costs about $5,548 in interest and fees over four years ($501 × 48 = $24,048; minus $18,500 = $5,548). That is money not going to savings.
- Depreciation: a new-ish $18,500 ute will lose value quickly; the loan balance may be higher than the vehicle's value if he sells.
- Risk: the budget depends on $120 of extra jobs every week. If work dries up, the ute payment and insurance remain.
- Goals: the scooter/bus option frees about $111.57 a week, so the $1,800 card can be cleared faster and the $5,000 fund built with a buffer.
Practical action: cut up or freeze the credit card after setting a $50/week automatic repayment, and set up a separate emergency account with a $65/week automatic transfer. If a vehicle is essential for work, buy a cheaper ute with cash plus a small loan after the card is cleared.