Rachel Cruze Explains Why a New Car Is No. 1 Worst Way To Spend Money
Money expert Rachel Cruze has built a career teaching people how to make smart financial choices. With her direct, relatable style, Cruze challenges the money myths that keep people stuck.
She posted an Instagram reel about one popular yet damaging financial choice people make. Here is the worst investment you can make, according to Cruze.
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Why New Cars Are Terrible Investments
Cruze began her video with a challenge: "What if I told you that I had an investment, and if you put your money in, you would lose 60% of it in five years? Would you do it?"
The correct answer is obviously no. Yet many consumers have already said yes to that investment -- with some saying yes every few years.
The investment? A new car.
A car isn't a financial product like stocks or bonds, so some people struggle to consider it an investment. But with transportation eating up roughly 17% of the average American's budget, according to U.S. Bureau of Labor Statistics data, it's an undeniably significant expense.
Thinking of your car as an investment can help you make smarter choices about what you drive, what it's worth and how you can even out your balance sheet.
The Car Value Dilemma
A new car loses 9% of its value when you drive it off the lot in most cases, according to Cruze. You can pay $30,000 for a vehicle at a dealership, and it could be worth about $3,000 less by the time you get it home.
This is among the major reasons why she recommended buying a used car. Someone else has already taken much of the depreciation hit, so your vehicle retains more of the value you paid.
3 Ways To Beat Depreciation When Buying Used
Cars depreciate based on age, mileage and condition. Your car will keep getting older, but most of the depreciation will have already happened if you buy it close to year five or six.
The mileage and condition are up to you -- and the previous owner. Here's how to keep those factors under control so your investment keeps more of its value.
1. Get a Vehicle History
The most significant risk factor with a used car is its previous owner. If the previous owner took good care of the vehicle, avoided accidents and kept up with the maintenance, you take fewer financial risks by buying it.
Before you buy any used car, order a financial history report. These reports include valuable information about accidents, repairs and ownership transfers. The details differ based on where you order the report.
2. Stay Current With the Maintenance
Routine car maintenance is like dental care. It's tempting to skip it when nothing seems wrong, but you could end up paying much more down the road. Follow all manufacturer recommendations for your used car's maintenance, including the timing of oil changes and tire rotations.
Those minor fixes help your car run better and can nip small problems in the bud. Mechanics can catch problems before you notice them, and smaller issues tend to be less costly.
3. Drive Less
Mileage matters, even on the most well maintained of cars. Progressive Insurance has recommended putting fewer than 10,000 miles per year on your car to reduce the risk of damage.
The less damage you do to your four-wheeled investment, the more it will be worth when it's time to sell.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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