Is a car an asset?
The subject of whether or not a car is an asset is one of the most perplexing in personal finance. For years, this subject has been asked in the personal financial world, and the responses have been diverse.
Many individuals see their car as an asset, while others see it as a liability.
Is your car an asset or a liability for you?
As you can see, this question is neither black nor white; it falls somewhere in the middle, which makes it somewhat perplexing.
Before I answer whether is a car an asset or not, let me first delve on what assets and liabilities entail.
An asset is everything you own that is valuable. Stocks, bank accounts, bonds, jewelry, and collectibles are all common examples.
An asset is anything you can liquidate (sell) for cash.
The majority of assets appreciate, but not all of them. Because assets are valuable, they raise your net worth.
You owe money to a bank or another person if you have a responsibility.
Liabilities, such as a vehicle loan, credit card debt, and a mortgage, all reduce your net worth.
When you owe someone money, your net worth decreases since you would have to liquidate your assets to pay off the loan, leaving you with less cash on hand.
How is a Car an Asset?
Automobiles are infamous for losing a significant portion of their value as soon as they leave the dealer’s lot.
According to a U.S. News & World Report, the average new car can lose up to 28% of its worth in its first year, with each succeeding year losing another 14% to 19% of its value.
So, if an asset is something that has worth, how is a car an asset?
The concept of a depreciating asset holds the key to the solution.
A depreciating asset is one that depreciates over time but keeps its worth.
Vehicles, unlike savings accounts, real estate, and other assets that appreciate in value, are subject to a variety of depreciating factors that can cause their prices to collapse.
The more kilometers on a car’s odometer, the more wear and tear it has suffered.
If you are in an accident or are exposed to the elements, each ding and dent detracts even more from the value of your vehicle.
An older vehicle loses even more value as time passes and newer versions are launched.
That’s before you factor in the cost of ownership, which is now around $9,000 per year and includes insurance, maintenance, and gas/petrol rates.
Even with all of this in mind, a car is an asset since you can swiftly sell it and get cash for it, although for less than you bought it.
That alone qualifies it as a valuable asset. However, a car is a depreciating asset because of the additional costs and the ongoing loss in value.
How is a Car a Liability?
The costs of your car don’t stop once it leaves the dealership. You continue to pay for auto loans, gas, maintenance, and other recurring costs.
As a result, your car is never truly a liability (because you owe no money on it), but rather an asset that depreciates in value and eventually becomes useless.
So, the true question is whether you think it’ll be a worthwhile investment for you. This may not always imply monetary gain.
It’s a worthwhile investment if your car gets you to work every day, makes your life easier, and is used on a daily basis.
From what you have read so far, is a car an asset?
The Actual Costs of Having a Car
Now that I have established that a vehicle is a depreciating asset, let’s discuss the true costs of owning a car in addition to the purchase price.
When you put money down on a vehicle, you should be aware of the following recurrent costs:
Many factors influence auto insurance estimates, including your driving record, gender, and age.
As a result, there is no such thing as an average quote because it is dependent on your specific circumstances.
Nonetheless, it is critical to remember this monthly cost.
The typical American household spends $370 on gasoline. Every month, nearly $400 of your monthly earnings is gone.
Loan for a Car
Your auto loan will be determined by whether you took one out or not, as well as the vehicle you purchased.
Whatever the sum is, be sure to factor it into your monthly budget.
Maintenance is required for a car. This could be for an oil change, windshield wiper replacement, or tire pressure adjustment, among other things.
When asking yourself whether is a car an asset, these are among the costs that you ought to be considering.
Calculation of Depreciation
Finally, it’s crucial to note that even if you don’t pay for your car’s depreciation on a monthly basis, it’s still a cost you have to pay.
According to a car’s depreciation timetable, you may anticipate to lose 40% to 50% of your car’s worth in the first five years.
As a result, new cars lose between 20 to 28% of their value in the first year and a further 10% each year following that.
Soften the Blow of your Car’s Depreciation
Although all automobiles decrease in value over time and with frequent use, this does not mean you have no options.
You may buy an SUV, car, truck, or any other type of vehicle that retains more of its value over time by making intelligent purchasing decisions and locating a model that meets your needs.
According to Kelley Blue Book (KBB), Toyota is the value brand with the best resale value, while Porsche is the luxury brand with the best resale value.
KBB picked the Toyota Camry, Subaru Outback, and Tesla Model X as the models that will hold their value the best in 2022.
Another option to decrease the impact of a vehicle’s depreciation is to claim it as a business expense when you pay your taxes.
If you use the vehicle for business, you can deduct up to $18,000 in depreciation under the Tax Cuts and Jobs Act.
And, as usual, taking proper care of your vehicle can help it last longer. Keeping the upholstery clean, ensuring regular maintenance, and making any repairs will ensure a high resale value.
A side income might also help you cover the costs of owning a car.
There are a few common ways for you to generate money with your car:
1. Advertising on your car
Advertising on automobiles is gradually becoming one of the most popular marketing tactics for small businesses, bringing in roughly $250 per month for those who sign up their cars.
2. Driving for businesses such as Uber
The best and most prevalent approach is to become a driver for firms such as Uber or Lyft.
3. Advertising to passengers
If you decide to work as a rideshare driver for a company like Lyft or Uber, partnering with a firm like VUGO, which pays drivers up to $280, is a terrific way to boost your profits.
You simply play video advertisements on a tablet during your passenger’s travel.
Your earnings grow if they interact with the advertising. This will also improve the overall client experience while also earning you some money.
4. Rent or lease your car
Renting out your car on days when you are not using it or when you are away is a simple method to earn money.
To begin leasing your automobile, you can use a platform like Turo.
How Much is my Car Worth?
Having answered the question on whether is a car an asset, it is also good to know how much your car is worth at any given period.
Going to Kelley Blue Book and entering the facts about your car is one of the simplest ways to figure out how much your car is worth.
You’ll be able to choose between “trade-in” or “for sale by owner” value, which will produce different results.
If you sell your car privately rather than trading it in at a dealership, you will get more money.
One argument is that it is simply more convenient.
Many purchasers find it easier to drive their old vehicles to the dealership and trade them in than to sell them themselves — and they’re willing to receive less for it.
Another reason trade-ins are purchased for less is that the dealership will not normally sell the car in the condition in which it is received.
Typically, the dealership will spend money cleaning the automobile and performing minor repairs.
Make your own decisions about how you want to sell your car. Would you like to trade it in or sell it privately?
Choose which Blue Book value to add to your net worth based on this determination.
Should You Include Your Car in Your Net Worth Calculation?
This is a good question to answer after answering the quiz on whether “is a car an asset.”
You must remove your liabilities from your assets when calculating your net worth.
Your car should be included in the computation because it is a depreciating asset.
However, you must first evaluate the current market value of your vehicle.
Any car loans related with your vehicle, however, are considered a liability and should be listed as well.
Is a Car an Asset Conclusion
It’s much more pleasant to think of an automobile as an asset than a liability.
The correct term is “depreciating asset,” but that doesn’t seem nearly as pleasant, does it?
When considering whether or not a car is an asset, keep in mind that what your car is worth today is not necessarily what it will be worth next year and so on.
It will continue to decline, but if you buy a new automobile and have to borrow money to do so, your net worth will also decrease since the loan falls under liability.
According to you, is a car an asset?