Cars are arguably the worst investment. Buy a new, let’s say $50,000 car and it depreciates approximately 25% ($12,500) in the first year. It then continues deprecating over its lifetime until it’s worth nothing, you might even have to pay someone to get rid of it and don’t forget about all that insurance and maintenance. It’s simply waving goodbye to those hard earned dollars.
Think about it, would you invest your money into an asset, investment, stock, business or marketing campaign you know is going to loose you money from the moment you put your money into it, until eventually you have none of that money left. And then, invest in that same avenue all over again continuing in the cycle. Ah, I sure hope not.
The more the car costs, the more money sitting a depreciating asset, then more insurance you have to pay and also eventually the more maintenance you’ll have to pay too.
THERE’S A BETTER WAY
If I told you that it’s possible to drive a brand new car and sort out your retirement income with one simple monthly pre TAX payment, would you believe me? I have a few examples but let’s begin with the car.
It’s as simple as leasing a car and investing the amount that a car costs to buy. That investment could be placed in a simple 10% return in stock, or peer to peer lending. It could be used in a marketing campaign or business venture that is forecast to return you 10-100x the investment amount. And then you re-invest that profit into another investment. There is a car lease plan for everyone, you can lease second hand or new starting from $200-$300 per month.
Additionally, if you can lease a car through your own business that’s better still because you can write off TAX/GST and you’re paying your lease with pre tax dollars giving you a minimum of 25% more buying power. I think everyone should setup a business even if they do little more with it than use it for purchases. The benefits can save you tens of thousands of dollars per year.
My favourite thing about this pathway is that your post tax dollars will be working hard at reproducing themselves in investments, while you’re able to save on your pre tax dollars. Below are some basic examples with a conservative 10% interest account.
Holden Spark (Hatchback)
Cost price $17,000
Monthly lease $280 +GST
Lease cost after 30 years: $100,000 +GST
Investment fund at 10% minus TAX after 30 years: $133,500
Mitsubishi CX-3 (SUV)
Cost price $32,000
Monthly lease $555 +GST
Lease cost after 30 years: $200,000 +GST
Investment fund at 10% minus TAX after 30 years: $250,000
Volkswagen Touareg (Luxury SUV)
Cost price $80,000
Monthly lease $1,500 +GST
Lease cost after 30 years: $540,000 +GST
Investment fund at 10% minus TAX after 30 years: $630,000
So, the next time you need a new car think about giving this a go. The first place to start would be to find a car with monthly payments in your price range. Then invest the cost of that car into some type of investment. Remember investments are for the long term, but if you have to do this for the short term it could still offset what you would usually lose in depreciation.
*All prices are done in NZD, TAX at 28% PA & GST at 15%