Earlier this week, I talked about buying a car.  Do you know that a car is what’s considered a depreciating asset?  So what does that mean?  It means that it’s an asset that’s value goes down over time.  What is an asset?  It’s something that has value where the value can go up or down.  In this case, a vehicle’s worth will normally go down over time.

Think about it this way….  You purchase a car for $25,000 today.  What will it be worth in, say, ten years?  I don’t know exactly, but it will be worth a lot less than $25,000.  After all, it will probably have a lot of miles on it, and perhaps need repairs.  The more dings the body has, the less value to vehicle will be worth.  I know I’m not telling you anything you don’t know already.  But, now you know what a depreciating asset is.

Want to know what your car is worth?  Go to Kelley Blue Book and plug in the information from your own vehicle.  You might be surprised how much or little it’s worth.  If it’s worth less than what you owe, you’re considered underwater.  What that means is that if you try to sell the car, you’ll get less than you own.  That’s never a good scenario.  It’s also called being upside down on your loan.  If you have an accident and total the car, you could still owe money on it even after the insurance pays their portion.  As you can imagine, this would be a bad thing for you.

A home, on the other hand, will usually appreciate over time.  That house you purchase today might be worth a lot more than you paid in that same ten year period.  Remember with a home, the three buzz words are location, location, location.

So today’s moral of the story is….

Minimize your purchases of depreciating assets as much as possible.  When I said to buy a good used car, there was a reason.  When you drive it off the lot, you’ll immediately lose about 9-11% of it’s value.  In the first year, you’ll lose about 20%.  For a $25,000 vehicle, 20% equals $5,000!  If that isn’t bad enough, after five years, the value your brand new shiny car is worth 40-50% less than what you paid.  I had my last car for thirteen years and drove the wheels off.  My current vehicle was purchased used and I’ve had it for eight years.  The wheels are still on it so I’m still driving it.  LOL.  

So, do you really want to take that immediate 9-11% hit when you drive a new car off the lot?  Or do you want someone else to do that?  Remember, purchasing a year old vehicle might save you 20% or more.  When I bought my current car, I saved over 30% from it’s brand new price.  It was a little over a year old when I bought it and like new.  Just remember, a vehicle is a depreciating asset and the value will continue to decrease over time.  

Want to know more?  Read my book!