There’s an old saying that goes, “Buy things that appreciate, rent things that depreciate”. For most people this means buy real estate and lease cars. But this doesn’t necessarily work out. Houses require repairs and land needs development if they are even to maintain their value, let alone appreciate. By the same token cars don’t depreciate into rust before you pay for them. If you drive a car until the repairs are more expensive than new payments, there will be years of usage at a lower cost.
It wasn’t always this way, especially with inexpensive cars. If you bought a Chevette in 1985, it would be dead at 100,000 miles. Thankfully standards have improved, and even cheap cars can be expected to roll over at least once, or even have a full six digits on their odometers.
Naturally, if you’re one of those people who consistently trades their car in every other year just to look good, then leasing is definitely for you. For the rest of us, be aware that leases with buyouts on the other end can be excellent forms of finance. Check the details of the contract and compare the numbers.
There is a difference between wealth and riches. Being rich means that you have a lot of cash coming in. Supermodels, professional athletes, and young professionals are often rich. Lots of money is coming in. All too often, lots of money is also going out. Always driving a new car comes at a high cost.
Wealthy people, on the other hand, have lots of assets. Retired people often have the asset of owning their house. Their cash flow is smaller, but they need less because their expenses are lower. As long as they don’t feel the need to move, they always have a place to stay.
The way to turn riches into wealth is to accumulate assets and use them to their best advantage. This is where owning your car comes in. Depending on how much you drive, you can easily get 7 to 10 years out of a car. Yes you’re making repairs, but it’s almost certainly lower than payments. If you can buy a particularly high-quality car, like a Mercedes, it will last even longer.
But what about your image? You spent all of those years in college, or all of that overtime at work. What about when you made a service call on Christmas? Don’t you deserve a nice car for that?
Of course you do. And here is where another very old technique comes in. Have two cars. No one cares what you commute in every day and leave in the parking lot. They only notice what you arrive in for the Christmas party. It’s fine to drive a small, highly fuel efficient car 150 miles to see your parents. It’s different when you drive up to an old college pal in a sports car.
That second, nicer car need not be one that depreciates much at all. I know a priest who lightly used his Camero for years. When I saw it the car looked new, even though it was 5 years old. His driving car, on the other hand, he was limping along. He probably could have sold the Camero after 15 years of use for half of what he paid for it, and enjoyed it for a decade for little cost at all.
Depreciation is applying the cost of an asset over the time of its usage. If you decide that cars are “used up” too early, you’ll always pay more than you must for the convenience of having one.