Money Mistake #2 - Buying a Brand New Car and Using a Loan with Hidden Interest Rates.

The moment you drive that car out of the show room, there goes 20% + of its value in depreciation.

When you purchase a new car, your insurance costs more and you often get upsold to buy after market accessories with expensive dealership finance.

Cars are a depreciating asset.

The key to building wealth is minimise your purchase of depreciating assets (cars, boats and other consumer items), and maximise your purchase of appreciating assets (land and businesses).

If you need a car, carefully consider how you purchase it. Whether to use salary sacrifice depends on your tax rate. You don’t have to use the dealership finance, there are other options (get in touch if you would like to discuss). When borrowing, consider end values, break costs, tax benefits and interest rates.

When purchasing a car through a dealership , the true interest rate can be hidden (its how a lot of them make their money). I have looked at a clients salary packaged car deal this morning, and the rate in the package is $4,000 more per year (!) than if they used their home loan rate.

A lot of financially successful people drive older vehicles. These principles are what keep them financially successful! I happen to know a number of people who drive expensive new European cars, and a number who drive older Toyotas. Due to my vocation, I happen to know which clients generally have more sustainable finances (yes I am generalising, hello to my client on this newsletter who drives a $600k Porsche GT, you earned your choice of luxury toy and you can sustainably afford this luxury folly through your business lol). One of my most successful clients when I was a financial planner, we would frequently have a chuckle that he and his wife both drove Datsuns, his Datsun he drove his into his office in Chifley Tower each morning, parked amongst the Mercedes Benz’s.

As I said last time, I always say to my kids:

If you want to be rich, live like a poor person.

If you want to be poor, live like a rich person.

Now, there is a middle balance here, you cant take it with you, but this is the number two mistake I see when people are trying to build wealth.

Want to chat about it? I look forward to your email at [email protected] or call me 0403397060

Stay tuned for number 3 next week.