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  • Don't you just love that new car smell?

  • Smells like power and freedom!

  • Actually, it smells more like petroleum-based solvents evaporating off vinyl and plastic.

  • Wow, buzzkill.

  • Let's see if you still like that smell when you find out what it's really costing you...

  • I'm locking the windows.

  • Since the auto boom of the 1950s, cars have become an integral part of American society.

  • Car companies spent 14.2 billion dollars in advertising alone in 2014 and that number is only rising.

  • They convince us that once we're behind the wheel, our families will love us more, our neighbors will envy us, and our freedom to go anywhere is secure.

  • Unfortunately, they're more likely to take away your freedom and security.

  • New cars are a financial triple threat.

  • We borrow money at interest, to buy an asset that we have to pay to maintain and...here's the big kicker...that drastically depreciates in value.

  • Waitwhat is depreciation, anyway?

  • Hey Julia, would you like to buy some ice cream?

  • Uh, sure, I guess...

  • That'll be four dollars.

  • I wouldn't pay a nickel for that!

  • But I paid four dollars for it twenty minutes ago!

  • That's depreciation.

  • Go wash your hands.

  • Cars retain their value about as well as ice cream on a hot day.

  • A new car will depreciate 63% in the first five years.

  • 10% of that the moment you drive it off the lot!

  • Calling cars a "bad investment" is like calling a honey badger a bad heart surgeon.

  • What?

  • I mean they're not an investment at all!

  • Exactly.

  • I mean, can you think of anything else you'd spend that much money on that loses value that quickly?

  • Oh, I don't know.

  • How about a garage full of beanie babies?

  • Heh, I told you the 90's are comin' back.

  • Sure, hon.

  • And don't think you can get out of this by leasing either!

  • Leasing companies set their prices so that you pay for the depreciation of their vehicle, and when it's over they still have an asset they can re-sell.

  • So let's set a few simple ground rules that will put you in the driver's seat instead of being taken for a ride.

  • Number One, buy a car that's 5 years old.

  • Right away, you're skipping the majority of its depreciation.

  • Number Two, save up to buy a car in cash.

  • Paying interest on something that loses value is like gaining weight from exercising.

  • All pain.

  • No gain.

  • Number Three.

  • If you can't comfortably afford to save an amount equal to your car payment, you can't afford it.

  • So if you're not saving $300 a month, you shouldn't take on a $300 car payment.

  • So how much money is actually at stake?

  • I think it's time to....run the numbers!

  • Let's say I buy a new car for $20,000.

  • I put $4,000 down, and I finance the rest over 60 months at 4.25%.

  • My monthly payment will be...$295.42!

  • That sounds pretty normal.

  • But check this out.

  • What if you bought that same car, but a 5 year old model, which costs you 63% less or $7,400.

  • Put your same $4,000 down, and with the same loan arrangement, you're looking at a payment of just $62.78/mo.

  • That's a monthly saving of...$232.65!

  • I could get a massage every other week with that!

  • You could.

  • Or, you could take those monthly savings and put them into a growing asset, like a home or a mutual fund.

  • And if you continued to do that every time you paid off the car, even at a very conservative 7% per year return, in 35 years you'd have over...$421,459!

  • Really?

  • Wow.

  • Now...is that enough to retire on?

  • Probably not.

  • But that's just one thing you can start doing now to prepare for your future.

  • There are many, many more.

  • You know, as much I like that new car smell, I don't think I'd spend half a mil on it.

  • Let's try this instead.

  • Ooh, what's that?

  • Early Retirement, baby!

  • And that's our two cents!

Don't you just love that new car smell?

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B1 US depreciation payment asset monthly buy leasing

How Cars Keep You POOR!

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    Mackenzie posted on 2019/11/15
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