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Depreciation: How It Works

Depreciation: How It Works

Money trees exist. Their technical name is investment, and they come in several different kinds. For example, there’s the “good real estate location” or “wise stock investment” varieties.

These kinds of money trees typically yield a bunch of good fruit—but what happens when the fruit of the money tree goes bad?

Depreciation comes into effect.

Keep reading to learn about vehicle depreciation and how you can make the best investment decisions for your future.

What Is Depreciation?

Depreciation is like a pair of socks. Let’s say you buy a set at the store for $10 brand new. Over time, you realize that you really like these socks and end up washing them over and over again.

As time goes on, your socks get a hole in them and then a few stains. They’re completely worn out so you plan on getting a new pair.

However, you can’t just go sell your current socks for the price you purchased them at. No, now they are worth far less; you’d be lucky to sell them for anything at all.

This is how depreciation works. As your investments wear out, whether it’s socks or automobiles, they’ll become less valuable over time.

Some investments depreciate at a slower rate than others, and other types of investments don’t depreciate at all. It simply depends on the condition of the item you have and the status of the stock market at the time you need to sell it.

Why Is It Relevant?

Depreciation is relevant because most of us own or will own a depreciating investment at some time in our lives. Vehicle depreciation is a great example.

Unless your car happens to have a famous history, it’s value will go down pretty quickly, and you won’t be able to sell it for as much as you bought it for.

These types of investments aren’t necessarily bad though. Many people need a vehicle to commute to their job so that they can earn money in the first place.

Ultimately, though, depreciation is relevant to note so that you’ll get a clearer picture of how much you own and be able to make wise investment choices over time.

How Do I Avoid Depreciation?

As long as you own a depreciating investment, you can’t avoid depreciation.

However, there are still ways to make to most out of your future purchases. As for automobiles, try to purchase a model that depreciates slower or simply lasts longer.

For example, some vehicle models are known for their high safety ratings, durability, etc. When stuck between two depreciating investments, choose the one that gives you the most quality so in a way those non-monetary benefits will make up for some of the value lost through depreciation.

Also, make sure to avoid committing yourself to a depreciating investment that isn’t worth it. This is another point that is especially true with cars. Some may have a nice appearance, but if they don’t have quality and will require consistent and expensive repairs, then they will not be worth it long-term.

What to Do with Depreciated Investments

What do you do when your $30,000 investment is worth almost nothing? In the fluctuating and seemingly ever-changing stock market, it’s sometimes good to wait it out. The same investment could double itself months later.

However, the automobile industry is a completely different story. With more and more new and updated vehicles coming out as years go on, worn cars don’t always bounce back on their value.

Sometimes repairs can cost even more than the vehicle itself. In this case, it would be wise to sell or scrap a worn vehicle and replace it with a newer, safer model.

Avoid purchasing a vehicle brand new due to the substantial depreciation during its first ownership season. Rather, go for gently used and pay attention to the mileage. Often, this is a good indicator to tell how long the car will last before it needs expensive repairs.

Sometimes, though, it can be tricky to sell an older model of car to buyers, unless it happens to be one of the few famous cars out there. Because they, like you, will likely be looking for updated versions with better safety features that come with upgrades in modern technology.

(If you need any help getting a return on your depreciated vehicle, we’d be happy to assist you! Feel free to scroll through this page to learn more about how we can help.)

Final Thoughts on Depreciation

Depreciation is very nearly inevitable when you own certain investments. While this may seem unlucky at first glance, you can still get a return.

By being wise in your purchasing decisions, you can get investments that last, such as quality vehicles, even if they depreciate over time. Though selling investments in the right way at the right time, you can minimize the amount lost.

Cars and other investments have a way of going down as they get worn out.

Yet, like socks, many of these investments are also needed, if not essential. So while depreciation is a common reality, don’t stress. Keep being wise in your investment choices and managing your current appreciating investments well.

This way, you’ll be taking care of your cash-flow and will be pleased with your investment ideas in the long-term.

Looking for more automobile advice? Then feel free to explore the rest of this website! Or hop to this guide to learn how to make an emergency car kit in case your vehicle decides to depreciate while you’re out on the roads.