Why Buying a New Car Shouldn’t Be Considered an Investment

You’ve probably heard a lot of money experts say that buying a car is a bad investment. Some even say cars are the worst investments a person can make. Still, plenty of people justify paying a hefty sum for a new luxury or sports car by telling themselves that their purchase is an investment, but this is the wrong approach to car-buying, because it can lead to a lot of frustrations--and maybe an empty wallet--later on.

As a rule of thumb, the only reason a car can be considered an investment is if it is a collectible classic. Sure, there are new cars that increase in value, but these occasions are extremely rare. There's no guaranteed way of knowing which new cars will appreciate or depreciate, but it's wiser to bet on the latter.

The reason you can't consider your car an investment is that investments make money. Real estate properties, stocks, business ventures--these are investments because they have a huge chance of appreciating in value over time. Meanwhile, cars lose value immediately after they're driven off the dealership, and they're worth less money with each passing year.

You might reason out, "But my car helps me earn money. It helps me deliver my products to the store and gets me to the job on time." In these scenarios, it's the goods that you sell or the career that earns you your salary that's the investment, not the car itself. Your car is merely a tool.

Instead of an investment, a new car is better thought of as an asset. If you find yourself in a financial pinch, you can sell off your car for a hefty sum. As an asset, your car is there for you to use whenever you need it. With use, your car will deteriorate, and at times, it's going to need repair. You will need to spend to ensure your car stays in usable and functioning condition.

Still, this is not to say that buying a car is bad. It's perfectly fine to spend money on something that's losing value--that's true for almost all of the things that you buy every day. That said, it's important to make sure that the amount you pay for your car is less than 33 percent of your annual income. Otherwise, you're spending too much money on your car. While seeing jaws drop as you pass people by with your brand-spanking-new Camaro or Ferrari can make you feel better about yourself, you certainly don't want to bankrupt yourself in the process.