Playing the depreciation game

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muddy old hatchback carI was terrible at maths. I failed my bog standard maths O’ level twice before  passing a Practical Maths alternative in the Sixth Form, all too aware I’d have trouble getting into Uni without a maths qualification of some sort or other.

Algebra, equations, logarithms, none of it made any sense whatsoever to me. It was extremely frustrating and, if I’m honest, it still is. So I was delighted at the time to discover, while I was rubbish at the abstract stuff, I was pretty damn good at the everyday, useful side of maths, including depreciation, fractions, percentages and mental arithmetic.

What is depreciation?

When things appreciate in value, they are worth more over time. When they depreciate, they are worth less over time, usually because of wear and tear. Which seems fair enough. But now and again it just gets silly.

Simply driving a brand new car off the garage forecourt, for instance, cuts an immediate percentage off its value, often representing thousands of pounds. Buy it one day, sell it the next and you’d be seriously out of pocket even though you’d only owned it 24 hours and drove it a grand total of two miles.

If that sounds nutty, it is. The second you drive your new car off the dealer’s lot, it drops in value. Sillier still, different cars depreciate at different rates. Here’s an excellent infographic illustrating exactly how the deprecation process works.

How can depreciation help you spend less? 

Luckily there’s no need to suffer. All you need to do to avoid depreciation is buy second hand cars, which means you turn the tables: the person who bought it new takes the drop in value on the chin, you get a bargain.

Here are some tips:

  1. bear in mind that the older the car is, the more slowly it will depreciate
  2. the value of a new car drops most dramatically in the first two years, anywhere between 10 and 40%
  3. by the third year an average car with 10k annual mileage can lose as much as 60% of its original value
  4. the vehicle’s age, mileage, model and condition all affect the rate of depreciation
  5. as a general rule, expensive cars depreciate more slowly
  6. fuel-efficient cars often keep their value for longer because they’re cheaper to run and in greater demand than gas guzzlers
  7. a brand new model will depreciate slower than a model that’s about to go out of date and be replaced by a new version
  8. if your car is in good condition it will depreciate slower than if you’ve let it get into a mess
  9. low mileage can help hold onto the value

What else depreciates?

Most things depreciate when they are no longer brand new. The same goes for second hand appliances, clothes, books…

Next week we’ll look at tips for successful negotiation, the fine art of haggling, to help you make the most of your anti-depreciation strategy.

(Thanks to http://www.sxc.hu/profile/hildegunst for the fab free image)

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About Author

I’m Kate Goldstone. I live just outside Brighton, high up on the South Downs, with my husband Tony and our three cats. I’m dedicated to saving money, spending less, buying wisely, cutting waste, re-using, recycling, re-purposing and generating cash from the stuff I no longer want.

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