Any time you can let someone else take the depreciation, you should. The fact is, wealthy people buy assets, poor people buy liabilities. To go a step further, poor people finance liabilities. If you have to finance it, you can’t afford it. That’s where buying used comes in.
There may be a 1% rule here—when it makes sense to buy these things new—but the other 99% of the time, buy used. There’s only a handful of things that should always be bought new; for most material possessions, used is best.
If we teach our kids the proper perspective on the true unimportance of material possessions, they won’t want the latest, greatest, and most expensive things. We have the money to buy a new car now, but because I know how terrible of a financial decision that is, we’re still going to buy used. It’s that mindset that will set your child up for success.
Teach your kids to buy these things used most of the time…
You probably saw this one coming. That’s why it’s first. Let’s talk about vehicles.
How fast do vehicles depreciate? You’ve probably heard a lot of different things, but here’s the facts: On average, a new vehicle loses 10% of its value in the first month (basically when you drive it off the lot), more than 20% in the first year, and then around 10% per year after that 1.
This varies widely, depending on how “good” or bad of a deal you got. If you financed twice what the car is worth, then the value is starting at 50% of what you owe, so for simplicity’s sake, we could say it depreciated by 50% before you finished signing the papers.
Let’s look at a “deal:”
Let’s say you buy a $45,000 car, on a five year loan, with a 4.84% interest rate. Those are some pretty standard numbers. I understand loans can be shorter and interest can be lower, but we’re looking at a standard deal here…
With this car, your payment would be almost $900 month (fairly average, sadly). Now we’re going to assume this car was actually worth $45,000 when you bought it. That’s a stretch, because it probably wasn’t, but we’re keeping this simple.
After the first month, you paid $900 (and much of that went to interest), so we’ll say you now owe $44,500 (again, being generous), but the car is now worth $40,500. After a year, you’ll still owe close to $40,000… around $38,000 to be specific (because compound interest is working against you), and the car will be worth about $36,000 if you’re lucky.
At the end of your five-year loan, you’ll have a car worth $10,000-$18,000 (depending on condition), yet you’ve paid around $51,000, not to mention what you lost in cashflow ($900/month for five years). Is that worth the new car smell?
Let’s quickly talk about the opportunity cost of that deal and that $51,000. If you would’ve paid cash for a $10,000 car, you’d have $41,000 left over. Divide that by the 60-month loan and it comes out to $683/month. If you would’ve invested $683/month for five years at a 9% return (a somewhat conservative average return on major stock index funds), at the end of five years, you’d have over $50,000 and you’d still have the car you paid cash for.
I know this is a simple example. I get that there are situations where the deal isn’t this bad, but this is the norm. This is a standard deal. And there are more deals that are way worse than this one.
Teach your kids the value of a used, 3-6 year old vehicle, with 60-100,000 miles. When you buy at that point, someone else took the biggest hit of the depreciation, you won’t spend as much money, and you can’t be upside down on a car you paid cash for. Teach your kids to make car payments to themselves, into a savings or money market account, before they buy the car — earn interest on self-car-payments, instead of paying interest on car payments to finance companies.
One last word; let’s talk about warranties. A lot of people buy new cars because of the warranty. Here’s the thing, if you pay an extra $20k or $30k for the vehicle, and pay for the warranty on top of that (either straight-up or worked into the price), is it really worth it? You can generally rebuild a five-year-old car twice for what you pay in price difference for the new car, plus the warranty.
For more on kids, cars, and getting a good deal, read: The Complete Guide to Kids and Cars.
When to Buy a New Vehicle
Pretty much never. There are some times when you’ll have a previous-year car on a new lot, and you may get a good discount, but it’s still going to depreciate by at least 20% in the first year. Buying a new car is never going to be the right choice financially, but if owning a new car is truly important to you, wait until you have the cash.
The second-hand market is growing rapidly. Why? because people are starting to realize how much waste we are producing, and how the fashion industry is responsible for making everyone think they’re “out of style” during each of the 52 fashion seasons of the year. Yes, the fashion industry has 52 seasons per year… one for each week. It’s a real thing. Look it up.
How fast is the second-hand market growing? This fast:
More people are willing to buy second-hand items, and more people are realizing how much of a rip-off new clothes are.
Teach your kids to not get caught up in brand wars and fashion trends that exist to make us spend more money. If you have favorite brands, you can typically find them at thrift stores anyways, but getting caught up on a brand for the name itself is a dangerous game, especially when that name allows them to sell their products for twice the price, or more.
Don’t make the excuse that you’re buying the brand because of the “quality.” While it’s absolutely true that some brands are higher quality than others, when it comes to clothing, it’s not worth paying 10x more for a brand that’s higher quality. First off, that’s not always true, and second, you’re paying 2x more for the quality, and the other 8x more for the brand name. It’s not worth it.
When to Buy New Clothes
When there’s a specific event requiring specific clothing, new may be your best bet. We buy a lot of new clothes from clearance racks, but only when the price is right, and often at outlet malls, the price for new items on clearance is comparable to thrift stores.
When it comes to books, the library is your best friend. With all of the ways to get free books today, it makes little sense to spend a lot of money on them.
If you prefer to own books, buy used. Amazon and eBay have plenty of options to buy used books for 1/8 to 1/2 the price of new books. If you get caught up on wanting the fresh, crisp, new book in your hands, that’s your prerogative, but you may want to rethink your feelings towards material possessions.
Of course, this is a minimalist blog, so I’m going to say things like that, but if it offends you or if you feel defensive, that may mean you need to listen all the more.
And what about text books for school? You have so many options to buy them used, there’s really no reason to buy new. And when you’re done, you can resell them on the same places you bought them from.
Instill a love of reading and learning in your kids, but teach them smart shopping habits.
When to Buy New Books
There may be times when you have to purchase a new text book, especially if it’s a brand new edition — you’ll want the latest. As far as other books, it’s your decision, but consider whether or not it’s worth buying new just to have books that may (or may not) look nicer. What’s the point? There’s no clear answer… but ask yourself the question.
4. Sporting Goods and Gear
Sporting equipment, bicycles, and even camping equipment can all be bought used, and most of it should be. How often does someone buy a new bike with the expectations of daily riding, only to let it sit in his garage for three years, and then eventually sell it for 50 bucks? Often.
You’ll have plenty of opportunities to get almost any piece of expensive equipment you want, based on other people’s failed hopes of using it. This also includes stuff like tents, snow/water skies, and yes, even boats. But before you consider buying a boat, consider how often you’ll use it. That could be something better rented.
Teach your kids to having a love for the outdoors and sports, but teach them smart shopping habits when it comes to buying the equipment.
When to Buy New Sporting Goods and Gear
Typically, if you’re going for quality, buying used is going to be more cost-effective, and the items will still last. If you’re looking for cheaper types of gear, buying new may be better. You just have to ask yourself if you’re going for the long-term quality or if you just want something temporarily.
The average markup for new furniture is 200-400% 2. Furniture is marked up higher right before a sale so the items appear to be discounted, yet they will come down significantly off the discounted price because they have such a high markup in the first place — that doesn’t mean it’s a deal 3.
Furniture begins to lose value before you take it home, like a vehicle (but typically worse). If you spend $5,000 on a new living room and bedroom set, good luck selling the entire lot for $500 a few years later.
Better yet, be the one to buy the $500 set of used furniture.
And if you have to take out a loan for furniture, 1) you can’t afford that furniture (yet), and 2) you’re going to be upside down immediately, and for the life of the loan.
We get into a new home, or a new-to-us home, and we immediately want to fill it with furniture. Take a step back and think about a few things before making such a large purchase:
- Decide if you need to fill the space in the first place
- Figure out which pieces you’ll actually use regularly
- Consider cutting what you want to buy by 25-50%
Don’t think of furniture as “value,” because it’s basically worthless once you get it into your home. Buy quality to last, sure, but it is not an investment. You’re simply making a purchase, and a large one. It’s a big decision. Consider it carefully, and if you’re not planning on buying used, determine if you’re just reasoning (making excuses) why it makes sense for you to buy new, and decide if this is a financially responsible decision.
Teach your kids to value material possessions in a healthy way—which means they take care of their things but aren’t attached to them—and you won’t have to worry about them going broke by way of furniture as soon as they get their own home.
When to Buy New Furniture
There’s really never a good time to buy furniture new. My wife and I got a great deal—ultimately, a house full of furniture with a sticker price of $6,000 for $2,000—yet we still would’ve been better off buying used, because we were barely able to resell the furniture for $300 five years later. Lastly, when buying certain items, such as a mattress, it often makes sense to buy new. I’m mostly referring to buying used for things like wood furniture, couches, and the like.
When it comes to washers, dryers, stoves, refrigerators, microwaves, and other appliances, the first thought in many people’s minds is, “I don’t want to deal with the headache of buying used appliances and having them break in a few months.” That’s true, so you’ll have to do some smart shopping.
Buying used appliances from a used-appliance store is rarely a good idea. Buying gently used appliances from another person, though Craigslist or another buying source, is a great idea.
You can buy that new fridge for $2,000 with a warranty, or you can buy a nice used one for $500, and replace it up to three more times for the same price as one new one. If $1,500 is worth it for you to know you have a warranty, go for it. But that’s a lot of money.
So where should you get said used appliances? Here are a few options:
You can shop at the stores for used appliances, and still get a warranty, but you’re going to pay quite a bit for it. Remember, they have to make money too. The bottom line is, if you buy a high-quality brand, it will cost a little more, but it will last a lot longer.
When to Buy New Appliances
If you just can’t stand the thought of potentially having to replace your appliances, and to not have a warranty, then buy new. If it gives you peace of mind, it could be worth it. Just remember, you’re often paying for it several times over. If you need a specific item, such as a stackable washer and dryer, you may have to go for a new one, but you can still find a lot of specific appliances if you use all the sources above.
Buy New vs. Buying Used
You’ll rarely go wrong buying used, and that goes for buying almost anything. If you do your research and make smart purchases, you’ll be rewarded for your efforts. Some people like new stuff, and sometimes that’s ok, but often that’s tied to an obsession with material possessions.
The less you care about stuff, the more money you’ll have. The less you care about stuff, the less you’ll have to work to pay for stuff, and the more time you’ll have.
Once you break free of the American consumeristic mindset, and start spending your money on things like experiences and memories, I’m betting you’ll become freer and happier.
Further Bible Reading
Further Book Reading
- The Minimalist Home by Joshua Becker
- The More of Less by Joshua Becker
- Stress Free Car Buying by Mico Silver
- The Rebel Negotiator’s Guide to Buying a Car by Grante Lange
- Everyone’s Guide to Buying a Used Car and Car Maintenance by Scotty Kilmer
- Stop Saying Adoption is Expensive
- 47 Things You Weren’t Taught in School (That Our Kids Need to Know)
- Your Kids’s First Car: Everything You Need to Know
- How to Teach Kids the Dangers of Debt (And My Debt-Freedom Story)
- When Should Your Kid Have Their Own Phone? A Real Conversation
- Budgeting for Kids: How to Teach Budgeting From Age 3 to 18
- C, Krome. (2018, November 9). Car Depreciation: How Much Value Will a New Car Lose? CarFax.
- K, Waits. (2010, 15 December). Cheat Sheet: Retail Markup on Common Items. WiseBread.
- A, Andriotis. (2011, February 2). 10 Things Furniture Stores Won’t Tell You. Market Watch.