When purchasing a vehicle, like every major purchase, you expect that there is a return or value on your investment. However, how do you calculate that investment? It may not be as easy as it seems.
The Value Equation
The fastest way to determine this is to take the investment revenue, minus the investment cost, divided by the investment cost. The investment cost is easy, that is the price of the vehicle. However, the other numbers are not so cut and dry. Every vehicle has ongoing costs that will raise the overall investment costs. This includes vehicle insurance, vehicle maintenance including gas, oil, and replacements like tires and parts. These amounts need to be worked out through the future of your car life. While it may seem that it is only $4,000 per year. You must realize that this vehicle may be used for up to six years or more. With this alone, you can expect up to a minimum of $24,000 in just maintenance.
Alternatives
An additional number that may be hard to understand is the investment revenue. When purchasing this car for yourself, there is technically no investment revenue. However, one number that could be used here is money saved. Theoretically, if you did not have your vehicle, you would be using a different form of transportation. Walking would obviously be the most cost-effective option, but this is not always an option. Therefore, we look at options like leasing, renting, taxies, and city buses. These all vary in cost and could change the equation significantly.
Overall Loss
Moving your way through this equation, you may have some high expectations of the return you may receive. However, you will be sadly mistaken to realize that pretty much any vehicle purchased for personal reasons is expected to be a negative investment. It would make the most sense to purchase the most inexpensive vehicle possible to minimize loss. However, we just cannot resist purchasing whatever catches our eye. While we could easily purchase a $5,000 vehicle that will get us to and from our destination, we simply cannot resist something that is “Shiny”.