Used Cars Kick New Cars Asses (Financially)!

Unless you’re filthy stinking rich, you should never purchase a brand new car!

“Why,” you ask? I’ll tell you why: There’s not one price reduction or incentive that a salesman can offer you that will make up for the 25% depreciation you’re going to take on that shiny new car the moment you drive it off of the sneaky bastard’s lot (they never advertise this piece of evidence for a reason: the truth hurts). Yet, this one simple fact will always remain: new cars are the largest assets we can buy that are sure to go down in value. Good enough reason?

“I work hard, so I deserve a new one,” I often hear. Well, I don’t know about you, but I don’t have that kind of money to waste (I’m hoarding it into my bank accounts for a new house in a couple of years). Whenever you buy a new car that’s essentially what you’re doing, because a new car wastes up to 75% of its value in the first four years. Depending on how many miles you drive per year and the physical wear and tear you subject it to (you know who I’m talking to, lead foot) your car will more than likely take a bigger hit than that.

Let’s face the facts: we need our cars! Better yet, we might demand some good reliable transportation, but that doesn’t mean we need car payments, or that we should be purchasing brand new cars that are way overpriced and too quickly value-depreciated! Do yourself a favor, by following the guidelines below when you’re in the market for a car, so that you can successfully steer clear of any bad decisions, and also avoid potential poverty (unlike the other showboats that are way over their heads in debt). You’ll be happy that you read them before that sleazy salesman gets his hooks into your soft skin.

Payment terms should never be longer than three years — never! The main goal is to get you to a point in life where you’re paying cash for stuff, but if you must finance, never take out a payment plan longer than this. If you do, you’ll find that the value will drop faster than your loan balance, creating negative equity, which is commonly referred to as upside down balance. Yea, just like your idiot neighbor’s house (and you know that show-off’s story)!

Total car payments (with insurance and regular maintenance) should never exceed 25% of your net income — never (actually, the lower the better)! Your net income, or the money you take home in your paycheck, is your spendable income. If you have more than 25% of this income tied up in a car payment schedule, you’ll shortly find yourself not being able to pursue other financial goals (like the bare necessities).

If you’ve been keeping up with the Joneses, and own a few cars, a boat and a motorcycle, at least make sure that the total cost of everything is less than half of your annual income! For instance: if you’re making $65,000 per year, then the total cost of all of your toys COMBINED should be less than $32,500. Otherwise, you are going to have too much money tied up in things that are bound to lose a tremendous amount of value. Mark my words!

Important: never … and I mean never (unless you’re dumb, and can’t follow advice when someone’s trying to help you learn something) buy a brand new car unless you can afford it and don’t give a crap about the loss you’re going to take. Instead, try doing the smart thing, and help yourself in the long run by purchasing a slightly used car (two to three years old, or older if you like to “ride the line”) next time around. By doing this, you’ll be able to have a sound mind in knowing that you own a good reliable car that is 50% (or more) cheaper than it was just two short years ago. To top this ecstatic feeling off, you’ll now know that your slightly used car won’t depreciate as fast as a new car would, and what you’re going to pay for it will be much closer than what you will eventually sell it for.

I learned this valuable lesson from a good-old, wise guy that my Dad used to run around with (who coincidentally owned a few new car lots, and also knew his way around a mechanic’s shop) and his advice hasn’t failed me yet!