We are talking a lot about expenses in this blog. So it is definitely interesting to have a look at new purchases in general and more specifically certain very common types of purchases that affect your personal finances.
One major purchase that many of you will have is buying a car. There might be many reasons why a car is necessary in your life. Maybe you live on the countryside and need a car to get to your job. Maybe you simply like cars and prefer the car to the public transport solutions. I do not want to discuss if one should have a car or not in this article but start with the assumption that you do need a car to manage your daily life.
While gas is expensive, the biggest cost that one has connected with having a car is buying it in the first place. Thus, it makes sense to buy a car that is not expensive. The cheapest cars are, no matter the model, cars that have already been used. A new car from the factory costs 30’000 – 50’000 EUR, while a used car costs anything between 3’000 EUR and 20’000 EUR. Used cars are cheaper simply because they have been used already by somebody else. Not because they are necessarily completely broken. A car’s value decreases instantly in the first days after it has been bought by a 2-digit percentage. In the first year usually 1/3rd of the value is lost. Thus, it is definitely not an investment to buy a new car from the factory but it is also a bad source of costs in general.
That is why financial unicorns never buy new cars from the factory but always and only used cars. Yes, it is true that used cars have have often and higher recurring repair costs than new cars and yes it is true that used cars will need more oil to run. But all additional costs that an average used car produce are nothing compared with the costs due to the insanely high prices of new cars. The tax costs might be slightly higher for older cars but again nothing compared with the money you save from not buying a new car. But to put this into number. You can expect running costs of a car of between 2’000 EUR and 3’000 EUR depending on the type of car if it is something like a Ford Fiesta, VW Gold, Audi A4 or standard Mercedes and not some weird or super expensive type of car.
The math is pretty simple. Let us say a new car costs for maintenance about 1’000 EUR a year and to buy it you pay 40’000 EUR. The used car costs for maintenance about 3’000 EUR a year and to buy it you paid 8’000 EUR. It would take 16 years until the used car is as expensive as the new car. Given that neither a new car nor a used car might survive 16 years, the used car is the winner.
The figure shows on the x-axis the years and on the y-axis the costs in EUR. New car costs are shown in blue and used car costs are shown in red.
This example does not even take into account that you could invest the money that you save in the beginning into a source of passive income, as for example dividends from ETF or stocks. So we are very conservative and nevertheless get a very clear result that supports buying used cars. Of course, one can argue about the numbers but I think that we have been quite realistic here.
That is why financial unicorns always buy used cars and never new ones.