Thinking about buying a new car?
Try this instead: Take your current car out for a drive, open the window, and repeatedly throw $100 bills out the window. Now that sounds dumb, doesn’t it? But when you buy a new car, you’re doing the same thing the moment you take it off the lot.
If you’re a millionaire, then feel free to go nuts and buy yourself a shiny, new car. But 98% of Americans simply can’t afford it. You’ll save a ton of money and heartache if you will just buy used!
So why are we making such a big deal about new cars? One word: depreciation. New cars lose 70% of their value in the first four years. When you buy used, the original owner has already eaten the cost of depreciation. You, on the other hand, get a great four-year-old car for a great deal—one well below the expensive wholesale prices of new cars.
Let’s dig just a little deeper. Say that you are thinking about financing a new car with payments of $400 a month, just a little below the average car payment. Your current car is worth around $1,500. If you take that $400 and pay yourself, instead of the dealer, you’ll have a $4,000 paid-for-with-cash car in just 10 short months.
Sell your old car and you’ll have $1,500 to bank as you continue saving $400 a month. Ten months later, you have $5,500 for a used car. Repeat this process again, and you’ll have a $10,000 car just 30 months after you started saving. How much more sense does that make than buying a new car and watching its value drop like a rock?
Used car lots are overflowing. Millions of cars come from expired leases. For-sale-by-owner magazines are easy to find. Usually, the best deals come from individuals who are eager to get rid of their cars. They have one car to sell, not hundreds of cars like a dealer, so they will be more desperate to get the car out of their yard. Also, call some of the banks in your area and ask them how they dispose of their repossessions. Repo auctions are a great way to find good deals.
Before you buy a used car, make sure you come prepared. Know the value of the car you are considering. Visit websites like KBB, Edmunds and Carmax and do your research, especially if you are working with a dealer.
Remember, unless you’re a millionaire, you can’t afford a new car because you can’t take the hit in depreciation! The new car smell just isn’t worth it.
Check out this video to discover how you can drive free and retire rich—seriously!
Find local professionals that Dave recommends for: