Those who know how to build wealth understand that every pound they spend should be seen as an investment. Even if you don’t have a lot of knowledge (or even interest) in how the stock market works, you surely know how to be successful: you buy a stock at one price and later sell it at a higher price, making a healthy and impressive profit.
The Worst Investment?
Let’s set up a hypothetical scenario. You have £25,000 to invest and a certain investment broker approached you with a great new investment vehicle. He starts by telling you that it is one of the most popular investments in the UK. He goes on to say that you can feel safe because a large amount of people invest in this product.
You have the same question as most would: “How much money can you make on this investment?” When you ask, you’re surprised by the answer. Your investment broker tells you that the chances are nearly 100% that you will make no money at all. Then he tells you the really shocking part: The chances are nearly 100% that you will lose at least half of your investment and most likely much more than that!
Who would sign up for an investment like this? The answer is, quite possibly, you! You would sign up for it because like most people, if you are purchasing a new car, you’re probably leasing or financing it. For most of us, a car is a terrible investment, but you need one, so what do you do?
The Facts about “Investing” in a Car
In this case, £25,000 is the amount that you are considering investing into this investment vehicle, so let’s act like investors and examine the facts:
• A car is a depreciating asset. As it ages, it loses value rapidly and drastically. There is very little chance of an car used for personal transportation will appreciate in value.
• Along with the financing payments, this “investment” has to be insured, repaired and maintained and registered with the state, further driving the cost of it higher. According to Green Apple Leasing, over five years it will cost an estimated £33,604 to drive your £25,000 vehicle, making the loss on this investment even higher.
• A reliable form of transportation is essential in order for most people to produce an income.
• Many people see a car as a social status symbol, but is the luxury component of an car worth the investment?
How to Lose Less
To be fair, one could argue that owning this car allows them to travel to their place of employment to produce an income so the investment isn’t actually losing as much as the raw numbers would suggest. Most would concede that owning a car is a necessity so let’s look at a better way to make an investment in a car without losing so much of the original money.
How can you minimise car depreciation?
• While there is nothing you can do to stop a car getting older, there are steps you can take to minimise its depreciation:
• – Ensure the car is kept in the best possible condition.
• – Limit your mileage where possible.
• – Ensure you get regular services based on the schedule in the manufacturer’s handbook.
• – Retain a service record and deal with any repairs when needed.
What are the alternatives?
Car leasing: There is arguably no better way to manage depreciation costs than with car leasing. Though you don’t own the car, you will pay a fixed amount each month (which will usually include the cost of servicing and repairs). This payment is primarily based on the difference in value between the vehicle when you take out the lease and its residual value.
Then at the end of the leasing period, which is usually three years, you simply hand the car back to the leasing company and you don’t have to worry about its depreciation or attempting to sell it. Then you can take out another lease of a brand new car and start the process again. This makes car leasing a particularly cost effective option for anyone interested in driving a luxury vehicle from a German carmaker, for example, which will not lose its value as quickly over the first three years.
To look at our cars available to lease go to www.greenappleleasing.co.uk or call our friendly staff on 0800 193 2422 and we will be more than happy to answer any queries
you may have.
