My father loved new cars. He loved the look of them, the feel of them, and even the new-car smell. There is something glamorous and glitzy about parading a new car through your neighborhood to impress your friends. Every three to four years, my mother and father would go out and purchase a brand-new automobile.
But there is nothing sparkling about buying an investment that will surely lose you money–no matter how much you convince yourself that it makes sense.
As a child, you don’t really consider financial matters such as depreciation and how a purchase can be one of the worst things you can do to your family budget. But what if I was to tell you that you should give me $70,000 and within two years it will be worth $45,000? Would you invest your money in that kind of asset class? No matter how much the car may boost up your ego or social status, it simply cannot add to your bottom line.
Watching my parents struggle with their finances taught me an invaluable lesson when it came to my own financial decisions: Only buy cars that are two to three years old, when the massive upfront depreciation has worn off. Take the cars in for their regular service, and you can always buy an extended warranty up to 100,000 miles on most of these used cars to protect you against some of your downside risk. You can drive the used car for another good five to seven years before you may need to buy your next car.
Take this one to the bank and I’ll buy you a spray can of new-car smell if you really want that new-car feeling in the morning.