A sure way NOT to build wealth is to sink money into either a brand new car every year or two, or to lease.
No question, a brand new car is nice, really nice, but there is a cost. I always joke that people will be taking out mortgages on them soon. When I was just starting out, people took out loans for their cars for three to five years. Now, I see them for seven to ten years. I like to look good, but I'll leave that for others and focus on building long-term wealth instead.
Leases allow the buyer the convenience of just walking away and getting another spanking new car. Sounds nice and they look good in their new car. The leasee has nothing left at the end, other than a bill for excessive mileage or wear and tear. It is the gift that keeps on giving - not for the leasee but for the leasor!
New car prices now exceed the average person's salary by a good bit. With the current environment, I'm sure the default rate on the car loans is ratcheting up. The finance arms of major car manufactures have got to be full of repossessed cars. Soon those manufacturers will be taking a hit to the profits and recognizing the losses (That's why I'm not investing in car manufacturers now, but that is a discussion for another day.)
Last week, I saw data on the price of used cars increasing significantly. That's understandable given the number of people out of work. A car is a necessity in most places now to get to work, but people are now being forced to trade down to used cars. A used car is not so bad when you consider how much less is paid and how fast a new car depreciates.
Since I am very mechanical, I fix just about everything on my car. For me, I get great satisfaction out of "fixing things". I realize that isn't everyone's gig, but here is how I think of it. If you have a $1,000 repair that you can't do yourself that is like 2 payments on a $500 car loan, but it stops after 2 months. You're not paying $500 for 72 months! Five hundred times 72 is 36K, without interest. Thirty six thousand is less than the average price of a car now. Screw that!
A great, free site I found for researching used cars is http://dashboard-light.com . They don't have an interest in selling you anything. If I had known about this site before, I would have never bought a Volkswagen (at the bottom for my year and make) versus a Toyota (at the top), that my wife bought.
I hate to admit it, but my wife was right!
