Have you ever thought about how buying a new car affects your net worth? I did a little research and found out that the average new car depreciates 20% as soon as you drive it off the lot. So, if you buy a $30,000 car, it will be worth $24,000 the moment you drive it off the lot. WOW! So, let’s take a look at the impact such a purchase would have on a net worth statement.
Here’s what a net worth statement might look like BEFORE the car purchase:
Now, we assume that you buy a $30,000 NEW car, using the $2,000 in your savings account for a downpayment. We will assume that you will finance the remaining $28,000 with a loan. We will also assume that you are going to keep the old car, which is worth $5,000. So, here’s what your net worth statement would like AFTER you bought the car:
Notice that your net worth declines $6,000 from $159,000 to $153,000. This decline is due to the fact that the car declines in value as soon as you drive it off the lot. So, that’s the penalty for buying a new car. However, remember that almost any car you purchase is going to continue to depreciate. For the most part, a car is not an investment.