In the past I did a WAVE-B Drive Free project. The starting car was a Ford Windstar Mini-van which was sold for whatever I could get for it. That money plus my small nest egg of $3,500 was used to buy a 1994 Honda Accord. One year and a half from then I sold it for about what I purchased it for and added that to the money that was saved to purchase a 2012 Honda Accord cash. The purchase price for the 2012 was $15,000 + registration, fees and tax ($17,000 total). The miles on the car was 26,000. The question I have is: what was the depreciation of this car to this point?
Operating costs can kill a good deal on a car. The depreciation of a car is the main financial loss expected in the first five years of ownership. That is the fixed asset loss of the vehicle. The car pretty much only depreciates only once.
The next big continuing loss year after year is the cost of fuel. This is why the MPG or MPGe is so important. The factors are the cost of the fuel, how much fuel you need, and the efficiency of turning the fuel into energy.
The cost of fuel is not within your control as much as the other factors. Still there are tools out there to help you. A web site called GasBuddy.com uses the general public to report on where the cheapest prices of gas is in relative real time.
How much fuel you need is determined by how far you are from work, grocery store, etc. This is a little more within your control. The choice is yours how far or how close you are to the places you need to go.
Efficiency is determined by which kind of car you drive and how you drive it. One resource is the fueleconomy.gov web site. Compare MPG with trip length HERE to find out the difference between two different cars. How you drive is important too. According to the US Dept. of Energy; observing the speed limit is worth 7-14% better gas mileage, removing excess weight can be 1-2% better gas mileage, and having tires with lower rolling resistance that are properly inflated can have a factor of 15-27% (The report) .
Collectively the three factors above can be 23-43% of your gas mileage.
The cost of repairs and maintenance is the next biggest factor for operating costs of a car. This can have a decreased expenditure out of pocket by buying a more reliable car. This can be checked at Consumer Reports (subscription needed for all article access)
The bottom line is although car depreciation is about 50% loss of the value in the first 5 years the holding costs can be like a leaky faucet for your finances. The only difference is the holding costs are continuous.
I was watching a movie the other day on my VCR. The movie was” Nightmare on Elm Street” 1984 version. The tape was priced with a sale sticker of $15.99. I had bought the movie in the early 90s. I see the same VHS movie for about $5.00 on Ebay. In 20 years it decreased 2/3 in value. The DVD version was going for $6.00. BluRay was valued at $3.99 .
The cost of movies has gone down with better quality. The same for many consumer goods. Which begs me to think what can I wait to purchase and purchase for less? I still use a standard def – Tube TV 33″ while I know friends who payed top dollar for HDTVs when they first came out.
The first one I remember seeing was a 16:9 tube 1080i resolution 33″ HDTV for about $5700. Now I can buy the model for about $200 on Ebay. When it is said “patience is a virtue” it might have to do with the fact if you are patient you might be able to be build diligence as well.
The economy of patience is as follows:
- patience allows for depreciation
- patience allows for time for better choices
- patience allows time to save more money; paying cash then using debt which cost more in future time
- patience allows for better versions of products to be made (computers getting exponentially better)
- patience allows for products to be made for more economically (think TV manufacturing cheaper)
- patience allows for time to not be taken by quick scams or high pressured sales
- patience allows for competition to crop up and drive prices down
- patience allows for the growth of small rewards into big rewards (think DRIPs)
Just remember: Be Patient because Time is on Your Side
In my previous post of Value Drops in Cars is Your Gain I focused upon the depreciation of the general purchase price of the car. Do you think depreciation can save you more bucks? There is a ripple effect of the depreciation.
- Sales Tax
- Insurance Costs
- Finance Costs
The first ripple starts with the tax value of the car. If the purchase price is decreased then the sales tax is decreased by the same ratio.
Value drops in cars is one of your best tools to have during a car purchase. It is a double edged knife as well. If you purchase a vehicle at the wrong time it will cost you money.
A car has a natural depreciation cycle. If you can map the cycle and make your purchase accordingly you can make a value purchase. Of course there are many other factors to purchasing a car but, depreciation is the biggest factor to determining how much you pay for a car.