A good friend wants to trade in her car. I looked up the value based on her data (2001 Mercedes C320, 98K miles) on Kelly Blue Book, and today it is worth about $8,500. That equates to almost $7,800 a year in depreciation. I laid out a basic chart below showing how the numbers worked out.
Year Value
2001 $55,000
2002 $47,250
2003 $39,500
2004 $31,750
2005 $24,000
2006 $16,250
2007 $8,500
All you need to get out of that is, she paid $55K for it, 6 years later it's worth $9K.
1/6th what she paid! In other words, she lost $46,000!
When you buy ANY car, you are throwing away money. When you buy a NEW car, you are REALLY throwing away money.
If she would have continued to drive her perfectly fine and functional garage kept Mitusbishi sports car and bought a 2001 Mercedes in 2004... just 3 years later... she could have saved almost HALF! .. $30,000!!
For me, it's really simple. Ever since I read "The Millionaire Next Door" and learned that the typical millionaire has always purchased a two-year old or slightly older vehicle, I have incorporated that into my lifestyle because, I want to be a millionaire. Remember my basic tenant?
If you do what "rich" people do, you get to be "rich"
If you do what "poor" people do, you get to be "poor"
This is a somewhat extreme example with a Mercedes, but it applies to all cars and all people at all income levels regardless. You can not get ahead in life if you have car payments. (unless you live at home with your parents all your life, and who is going to do that?)
All a car does is get you from point A to point B. It is not some sort of status symbol. If it is a status symbol for you, then your priorities are in the wrong place.
In my own life, I've gotten to the point where material things are truly not important to me. This is a place everyone should be. As a nation I see that people are too consumed with material things. It seems there is a gaping hole in people's lives that they are trying to fill with "stuff". No matter how much stuff you get, it's never going to make you happy.
Focus on faith, religion, family, and friends: In That Order.
These are the things that will truly fill you up and give you ultimate happiness and a good life.
Am I against material possessions?
Absolutely not.
I like nice things. It's only natural. Everyone does.
What I'm saying is, do not make those things the center of your life. In the end, it will be your downfall. I've seen people treat their cars like a car is their kid for the love of Pete. That is insanity.
You may be asking, "Should I ever buy a new car?" The answer to that would be, "The only time you should ever buy a new car is when you have a net worth of $1 million."
Then, you may be able to afford the depreciation.
Finally aS a side note, I got my Honda Accord 1-year old in 2004 for $16,000. 3 years and 140,000 miles later, it is worth $5,000 on trade-in. It depreciated about $3,700/year, or half of that Mercedes, while costing 1/3 the price, and they are almost worth the same value!
1 comment:
My first two cars were both second-hand/used. The first was actually my sister's old car (an Austin 1800) which we got back from her ex-BF, but which my sister originally got from our grandmother. Unfortunately we never got it running on account of the ex-BF leaving it sitting on his front lawn for a year, without using it, so the engine siezed up. I had no qualms selling it for $50 to an old school chum coz his father pretty much spent the afternoon with his head under the hood and figured he could get it running. And if they couldn't, what's $50? I'm sure they got more than $50 of father & son quality time out of the just in trying to get it running.
My second car I bought off an old family friend who'd given up driving. I said he was old, and he was, and so was the car but unlike the Austin this baby ran so it was all good.
Back home I'd take my car to the garage of another old family friend and he'd perform whatever maintenance he figured it needed at the time, and being an old family friend I knew I could trust him not to rip me off by replacing something that didn't need replacing.
Here in the States, without knowing any mechanics, and having already had a couple of bad experiences at Pep Boys (you'd think you could trust a chain not to rip you off) I refuse to buy a used car because, in my opinion, I'm just buying someone else's problems. You never know how someone treated the car they planned to trade in after 2 to 3 years. Plus here in Los Angeles, it's way too easy to put 50,000 miles on a car in 2 to 3 years. My old car back home, at 20 years of age, had about 60,000 miles on it when I got it, and in the few years I had it I added another 15,000 miles before selling it for about half what I paid for it :)
By contrast my 2002 Focus is probably worth 20% of its original value, and it already has over 50,000 miles on it.
You should never buy a car thinking of it as an "investment", because unless it's a classic it will always lose value.
Geez, that's not a comment. That's a blog entry in itself :D
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