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DEPRECIATION

Uncategorized Apr 10, 2019

Definition

Depreciation is when an asset loses its value over time.  It has various methods and treatments according to the companies' policy.


Why It's Important

Cars are an asset that depreciates rather quickly.  That is why they say once you drive off the lot, it has already lost some of its value.  Some conventional wisdom uses the 3 year rule:  Only buy a car that is 3 years or older because the first 3 years is when it loses most of its value.  Why not let someone else take that hit instead of you?  If you do get a new car, go for a brand that depreciates slowly.  For instance, I used to have a 2016 Honda CRV that I bought new off the lot (Read about its ending here).  When I got rid of it in 2018, I was only in the negative $3,000!  That is a huge deal being that the average loss is 31% by year 2.  Here is a good article on car depreciation from Edmunds: How Fast Does My Car Lose Value

Cars aren't the only things that depreciate.  Add to that:

Computers and Electronics

Timeshares (More on that here

Homes

You may be thinking homes don't depreciate.  Well, sometimes, they do.  It all depends on location, condition, the economy, and the relative value of nearby homes.  So, when you are purchasing a home, keep this in mind!

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