Your car will be worth exactly LESS than the day you bought it.
This is the single factor that matters most when looking at automobiles, and their role in our financial lives. They never add to it, they only subtract. They are never assets because assets grow in value. These are consumables, like a refrigerator, or a pair of shoes. Sure, quality matters because you don’t want to turn around and have to replace or repair them more often than necessary. And it’s a fair call, within a very limited reason, to consider what you like and the style. But the idea that a car can add to your bottom line or be a financial move is completely wrong. Buy a new car, and it can lose up to 20% of it’s value when you sign the title. Where else can you devalue your money so quickly? It’s like magic. And cars are usually our second biggest expense second to housing. Uh oh.
Investing in expensive cars.
You’ve heard this before. Buy as much car as you can afford. High end luxury brands only cost more, and will drop in value just as fast as something costing less. Look at older european cars that sold for $70K and you will find them at used prices only a tenth of their original selling price. No brand is immune to this. If you spend more, you will lose a similar percentage, just on a bigger number. Another secret is that expensive brands are very very expensive to repair. Another mistake is to buy cars too loaded, with the most options, because it will help your resale. This will also get you in trouble, because they only add to the cost, and the ROI on that money practically disappears after purchase. Especially if it’s a “limited edition” option, or some new technology. Guess what, nobody will think that rare paint color or designer version is special later. Your car is not the next collectible. And new tech isn’t worth much either. If it isn’t standard, it will be in the next, or later years. An example: when airbags were a new item, people would pay thousands extra for them. Seemed like a really valuebale safety item, only available on the best cars, right? But, they quickly became standard equipment on every car.. And nobody would ever consider paying extra for an older car that had early, optional airbags in it. It’s just another used car with air bags. See?
There is no such thing as a new car.
That’s right. All those cars at the dealer lot are only new for the sales people. They sell new cars. You buy a used car. Think about it. If you tried to turn around and sell a car you just bought new off the lot, where would you list it? The used car classifieds. Not the new car classifieds. And when somebody is considering what price they should pay you, they refer to the Kelly Blue book value of USED CAR prices. You see, they are all used cars anyway, so skip paying more for something you think is new, and get right on to buying cars that are already used. In fact, the further you can get from the car’s manufactured date, the closer you can get to it’s actual value.
Buy at the bottom.
This is the point at which a car stops free falling and starts to level off a bit. I like to think of this point being somewhere between 5 to 15 years old. Approaching 20 years and more actually becomes a losing proposition because parts, and people willing to work on them start to diminish. Ten is really a sweet spot for many cars. You can almost buy them, put some miles on them and if you needed to, sell them again and you aren’t out very much money. Dependable cars that have been lightly driven and maintained are out there if you do some research and get to know the used car listings in your area. After a few weeks or months you will start to spot these. A ten year old car with 30K miles is a real bargain if it has been garaged and cared for. It’s only been lightly broken in and is functionally new for many miles. Most makes of cars are easily capable of 100K miles, and many are known to double this mileage.
All cars need repairs.
If it has a motor, it brakes and needs maintenance. New or old, every car needs oil changes. Tires wear just as quickly on new cars as old ones. Brake pads too. So knowing these things are unavoidable, the key is to have as little paid into this situation as necessary.
Don’t waste all your money in one place.
Just like any investment, or in this case, expense, what you spend in total on cars should be a proper percentage of you income. Like less than half. So, if you have a $50K income, the most car stuff you should ever own would be less than $25K all together. It’s no different than any other expenditure or investment. You need to look at it with proper amount of allocation.
Your car is not an investment. It’s an expense. The more you can limit this expense, and still drive something you like, the better off you will be. Your money will be freed up to invest in things that are actually investments. Like savings, mutual funds, property. You know, things that become worth more money over time.