Saturday, August 1, 2009

Turn Your Car into a $174,000 Investment to Increase Your Wealth

Do you love your car?
Did you know that your car is a ‘money pit’? Let me explain.
Let’s set aside the fact that you love your car (as I do) and let’s look over its true costs as a transportation vehicle. Aside from the entertainment value that cars add to our lives, we want our cars to safely take us from ‘point A’ to ‘point B’. That’s the functional purpose of automobiles.
New cars lose their value FAST. Very fast. It’s estimated that a new auto will lose 20% of its value as soon as we drive it off the lot. And after the first year of ownership, the value continues to decline 7% to 12%. When you put these depreciations together, a new car loses 25% to 35% of its value in its first year!
Therefore, if you buy a new car for $25,000 it will be worth only about $17,000 by the end of your first year of ownership. That’s an $8,000 loss – ouch! By the end of your second year of ownership, the value will drop to around $15,000 – which is a $10,000 loss in only two years.
Plus, insurance rates are higher for new vehicles. And in some states, vehicle registration costs are considerably higher for a new car – sometimes hundreds of dollars more than a used vehicle. And of course, we’re losing money on the interest we’re paying for the car loan. The bigger the loan, the more interest we pay.
But let’s say that instead of buying a new car, you purchase a 2 year old vehicle of the same model (with reasonable mileage). You won’t have any trouble finding one that looks and drives pretty much like new. Other than not having the ‘new car smell’, it’s almost the same thing.
But the biggest difference is that by buying a 2 year old model, you’ll be $10,000 richer. Learn more about building wealth here .But what if you invest that $10,000 used car savings and put it in a Mutual Fund for 30 years? At a conservative 10% annual return, your $10,000 will grow to over $174,000 thanks to the magic of compound interest.
If someone offered to pay you $174,000 to drive a nice used car instead of a new car, would you do it?

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