February 4, 2014
Buying a new vehicle drops your net worth more than a used vehicle. Why? Alternatives?
Buying a new vehicle drops your net worth more than a used vehicle. Why? Alternatives?
The reason a new vehicle drops your net worth more is due to the fact that the value of the vehicle drops drastically the first few years that it is on the road, while you still have to pay the full price of it, it may only be worth half of what you paid for it a few years in to it, you are better off buying a used vehicle of 3 years or more and holding on to it for as long as you can.
A new vehicle is a depreciating asset. Once you drive it off the lot you are already losing money on it. Along with that come tax, title, and license fees which are very high on newer vehicles. Insurance on a new vehicle is extremely high as well. Most people will end up taking a loan out on a new vehicle for 5-6 years. This is 5-6 years of paying interest on “something” that lost you money the day you purchased it and is costing you money every day to drive it. All the while you are getting the false piece of mind of driving a new car!
What you should do is buy a used vehicle, 4-5 years old. Do your homework before going to the dealership and always be willing to walk away. Once you buy the right vehicle drive it for a very long time to reduce those fees/costs that come with the purchase of a new vehicle.
Those were two wonderful answers, but I must say, Chris covered the subject in the most comprehensive way. Well done, gentlemen. Let’s recap.
The new car makes you feel like a big shot, but it ultimately ends up costing you dearly on your personal balance sheet (net worth statement). Depreciation and the many costs that go with that new vehicle will ultimately send you in the wrong direction financially. What should you do?
Buy a vehicle you can afford (focus on the total cost of the vehicle rather than the monthly payment) and that has been checked out by a good mechanic. Buy it with cash if at all possible and then drive it FOREVER. Why? You want to be financially free one day and buying multiple cars (especially new ones) will not help you do that. Knowledge is POWER. Follow it with ACTION and you will be UNSTOPPABLE!!!!!!