Buy a used car with low miles
If you need to buy a car, and are trying to build your cash reserve, one smart move to make is to buy a used car that has low miles. Buying a used car with low miles is going to save you 20%-30% of the new car price, and still help you avoid many of the pitfalls of buying older used cars. let's take a closer look at why this works.
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First, cars do not hold value as well as other major purchases, in fact, cars hold value poorly. On average a car will depreciate in value by 20% the first year of ownership. This is why people say that your car loses value the second you drive it off the lot. A new car is wonderful, but if you were to buy the same car after a year, you are looking at an average savings of $4000-$5000. This means a car that cost $30,000 new will probably only cost you $24,000-$25,000 a year later. This is a great deal of savings.
The second year of a car's life is not as bad, but it is not good either. On average a car will depreciate an additional 15% in the second year. This means that buying a car that is two years old, versus new means a 35% savings in cost. If you are financing the car, how much more could you be saving by not paying interest on those thousands of dollars? If you were to put those savings into a cash reserve, as if you bought a more expensive car, you would have a few thousand dollars by the end of a year.
So, buying used means not as dramatic depreciation in the first few years you own the car. This means big savings for you, and buying for less.
The next place you save is that you can get the same benefit as buying new when you buy a used car with low miles when it comes to maintenance and repair. new cars are far less expensive to maintain than old cars, as cars that start to hit the 100,000 mile mark are known to have some significant repairs come up. So, if you buy a car well under that mark, it gives you several years of driving before you have to start replacing things like transmissions, drive trains, clutches, timing belts, engine blocks, etc. All expensive repairs, and repairs you do not usually see until about the 100,000 mile marker.
Thus, a used car retains its value better than new, as was mentioned, but if it only has 10 or 20,000 miles on it, you still can depend on it to not cost you a lot in maintenance for several years of driving, and even longer as long as you keep it maintained, follow the owner's manual recommendations for oil changes, tune ups, etc.
Buying new equals big depreciation. Buying old mean big repairs. So, but used with low miles and get the best of both worlds, and put the savings into your cash reserve.
