Everybody loves spending money on cars. Many of us like to think that cars are intertwined with our identity and depict our status in society. With this mindset, people spend frivolously on cars stretching their budget to the absolute maximum. But cars are the absolute worse investment you can make. If you buy a brand new car and you drive it off the lot, the moment you drive it off the lot, it has gone down in value at least 30%.
So say you buy a £30,000 car. You drive it off the lot, you go round the corner and you bring it back. The dealer will give you back £20,000 for that car. That is a terrible investment.
The smartest thing you can do when you buy a car is to buy a car that is at least 2 years old.
Two years is rather specific but here is the reason why. In the 90s, a huge movement of leasing cars started in the western world. A lot of those cars were on two year leases. So what happens is that these cars come back to the dealership and they are almost still brand new. They don’t even have a lot of miles on them. But you can buy that car at half the price of buying a new car. This is a really smart thing to do.
Many people say that buying a second hand car is good but it does not smell brand new. They have got this special spray now that they have got at car washes and you spray it in your car and it smells just like new. Stop making excuses! Your bank account is more important than the pride of ownership of a new car!
Leasing a car VS Purchasing a car
This is a question that gets asked a lot in the personal finance circles. A lot of people say that you should always purchase and not lease. Whilst purchasing a car rather than leasing is the better for the vast majority of the population, it isn’t always the case. There is no such thing as you should always do something.
Here is when leasing a car is better than buying a car with cash outright:
If you are in business and you can write off your lease as a tax deduction, leasing a car makes better financial sense. So if your car is exclusively for business, you can ordinarily write off the lease as a tax deduction. If you use the car for business and private use, you can write of the lease lease in proportion to the amount of time (or mileage) you used the car exclusively for business purposes. (Always Talk to your tax advisor or planner)
With the tax deductible element you can get a great deal on a lease, drive a brand new car every few years and really not pay for it because you are getting to write it off.
On the other hand, a lease will not work for you if you if you drive a lot of miles. This is because if you have a lease arrangement and you drive over a certain number of miles, the dealer will hit you with a number of penalty fees for every mile extra you drive. This can certainly add up! So if you drive a lot of miles, there is no way a lease is going to make sense financially. In this case, it is better to purchase the car. And when you look at buying a car, I would look to buy a car that is at least two years old as stated above.