So, you need a car. Do you buy that brand new car or a used one? You may ask yourself, what’s the difference, besides the obvious new versus used? Well, buying a new car comes with tons of costs that you can most likely avoid in buying a used car. To get started, let’s look at why buying any car can be costly…
Why Buying Any Car Is Costly
The first concern with buying a car is that most people can’t afford the pay for a car in full. They’re so expensive nowadays. So, most people will need to borrow money from the bank. And that loan comes with interest. Remember we want to earn interest, NOT pay it!!!
Secondly, we have to pay to maintain the car. Those regular oil changes, the occasional nail in the tire, and even keeping it clean all costs you money. And how come every time I get my car serviced, it seems like the air filter needs to be replaced too? The costs keep adding up.
Lastly, cars depreciate in value at an insulting rate. In the first five years, your car will depreciate an average of 63%, with 10% of that depreciation happening the minute you drive it off the dealer’s lot. OMGosh!!!
Oh, what is depreciation? This is the value your car loses over time. For example, if I buy an ice cream cone on a hot day for $4.00 and then try to sell that same ice cream cone to you 10 minutes later for $4.00, you probably won’t buy it. That because the value of the ice cream cone has lowered because the ice cream has melted away and the cone is soggy. So, yeah…the value of your car melts away like an ice cream cone on a hot day.
Cars are NOT an investment
No, cars are NOT an investment. Well, at least for most people. Sure, if you have to buy a car because you need a car to make your money, like an Uber driver or a taxi cab driver, then you could say you’re investing in the car. This is with the hope that you’ll get more out of it than you have to put into it. But for most people, buying a car is not an investment. You will not get out of it what you put into it.
“Well, I’ll just lease instead.” Leasing is not a good option either. You typically will lease a car for 3-4 years. This means you’re set up to pay the majority of the depreciation on the car. Then once you hand the car back in, the car dealership can turn around and sell that asset to someone else, and you’re left with nothing. If you listen carefully, you can hear them saying, “Thanks for taking care of that depreciation for us.”
Ground Rules for Buying a Car
If you need to buy a car, here are some smart ground rules that will help you minimize the cost:
1. Buy a car that’s at least 5 years old. You skip the majority of its depreciation.
2. Save up to buy a car in cash. This way you skip having to get a loan and pay interest.
3. If you can’t save an equal amount each month to what your car payment will be, then you can’t afford the car payment. If you can’t save $250 a month, you can’t afford a $250 car payment.
Although a car is a necessary evil, it doesn’t have to be a heavy financial burden. You can make good decisions with your car purchase so that you get the most value out of a vehicle for what you have to pay for it. Buying a new car is what our egos tell us to do, but buying a used car is what our brains tell us to do. We need to listen to our brains and put our egos in the back seat. Don’t try to rationalize a huge car payment for a new car and why you had to buy a new car over used. If you can afford it, great, do your thing. But if finances are a problem for you, why are you buying new cars???
Some of the wealthiest people in the world buy used cars and get the most value for their dollar. Sure, it may not seem as classy and glamorous, but it sure does save on the wallet and make the most sense.
This post was inspired by Two Cents’video titled How Cars Keep You POOR! found here: