Don't Do It!

Buying a Car
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Yes! You read it here first, folks: a car-buying process that first counsels its readers not to buy a car! Utter Foolishness!

Why? Because, no matter what mystical incantations a car salesperson may whisper in your ear, cars are not investments. Go ahead, say it with us -- even if there are children in the room -- all together now: CARS ARE NOT INVESTMENTS!

'Nuff said?

Certainly, there are a few exceptions to that rule, but in general, vehicles are what the accountants among us call depreciating assets. Yup, that's right: all that iron, glass and plastic loses value over time.

Think of a vehicle purchase in comparison with the other big-ticket purchases we make during our lifetimes. Buying a house is usually the single biggest purchase (or group of purchases, given the mobility of the U.S. population) that most folks will make. However, there are a few things that make car-buying much more important with respect to our personal financial fitness over time.

Such as? Well, the opposite of depreciate is appreciate, which over time is what a house tends to do. This means that it actually gains value. That's nice, particularly if you're actually living in the house while it becomes more valuable. On the other hand, our Foolish Go-Kart is losing value from the moment we sign the dotted line and screech out of the dealer's lot.

How big a bite is this depreciation? On average, cars (and trucks, too) lose more than 20% of their value in the first year. Some vehicles lose as much as 40%. The second year isn't much better, as they disintegrate another 15% or so in value. (Take heart, Fool. Each year the bite is a little smaller, i.e., 13% in the third year, 12% in the fourth, etc. And don't forget we are talking averages here; your new Foolmobile may depreciate by more, or less, in any given time frame).

If you paid $20,000 for a new car, then after two years of driving, it may be worth $13,000. Yes, ma'am, $7,000 vaporized in the thin air of depreciation. That's $3,500 per year. Almost $300 a month! What if the $100,000 house you moved into just two years ago was now worth $65,000? How would that make you feel? (If the numbers aren't bad enough, click here to tinker with our Foolish depreciation calculator on the Web for a full-color illustration of this breathtaking descent.)

The average age of cars (including trucks) in the United States is somewhere between seven and eight years. Since most families have two or more of them, this means we end up buying one every three or four years. That great sucking sound, Fool, is caused not by jobs heading south to Mexico, but by the rush of dollars draining from your bank account.

From the foregoing issues comes our first really big piece of fully Foolish advice with regard to car-buying, and it is simply... DON'T DO IT!

No, we're not being slippery here, we're not saying that leasing is the best way, either. What we are saying is, from an investment standpoint, "Don't buy it new or used. Don't lease it. Don't finance it. Don't even rent-to-own it. JUST DON'T DO IT!"

Ask yourself these two litmus-test questions each time you are considering a vehicle purchase:

  1. Do I really need a vehicle change?
  2. Why?

Answer them truthfully, each time, and you will come away with a much better understanding of what your needs really are.

Sit down with a sheet of paper in front of you and write down that first question. "Do I really need a vehicle change?" Or could I just use an oil change? If you feel that you really do need a new car, then write down the second question, "Why?" You might find that you have more than one answer. That's fine. In fact, keep asking yourself the "why" question until you run out of responses.

If, after all this, though, you decide (Devil may care! Damn the torpedoes! Boldly go where lots of others have already gone!) to go ahead and do it, then we'll present you with intelligent ways to make your decision and save money in the steps that follow.

Ladies and gentlemen, start your engines! On to Step 2 -- your car-buying budget.

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