Mixed Up Money: A Silo Financial Mindset


Jo saved during the loan moratorium

Jo is successful in her career for an early 30s lady. She bought a luxury car just before the 2020 covid lockdown and was worried when the economic downturn seems to come too quickly in March. Luckily, things didn't turn out that bad for her office. They are making record sales. And then there's the loan moratorium. Come September, she has saved up RM10,000. The first savings of her life. 

And Jo wants to pay the debt as advance payment

She wants to put all the savings into her car loan account as advance payment. She feel that it means the loan amount to settle will be lower when she sell her car. She is losing money if the amount to settle is higher than the car selling price. This thought is a pain that she wants to avoid, despite the fact that total loan payable is the same, regardless of the advance payment. 

Surely, paying off debt is good? It depends how you look at your expenses. 

The cost of thinking money in a silo

Making decisions based on "one thing" is something that consumer thinkers then to be on hindsight bias. They think one transaction as loss or gain, without considering the bigger picture, the overall gain or loss in life. 

Financial thinkers are different; we see our personal finance as a balance sheet. Yes, there are times where mistakes are made, and we lose some money. But what is more important is that the balance sheet keeps growing. E.g. We know that it's okay to have debt if there are no interest charges. 

In Jo's case, it doesn't matter if the car loan outstanding looks higher; the RM10,000 will do better sitting in the sad 1.5% fixed deposit for 5 years. This means she will earn RM150 interest for a year. And if she chooses to sell her car five years later, RM750 better off. 

These are simple math; all things alike. Jo can be RM750 better off by not thinking the of the loan as THE problem. The problem is personal financial hindsight, how far do you visualize your life?