Dime Finance

smart money.

Dealing With Depreciating Assets

Ever bought a new car? If so, you’ve fallen for a brutal trap by buying one of the most wicked depreciating assets.

So, what IS a depreciating asset? Simple: a depreciating asset is a resource which loses monetary value over time. A depreciating asset is the opposite of an asset which gains value over time, like a house, or fine wine collection. In a way, many of the things we own are depreciating assets; apples, clothes, and computers all lose value the longer they’ve existed/been exploited. The key word in the previous sentence is “existed” not “own”. Once an article of clothing or an apple becomes yours, it only loses value relative to the merchant’s reservoir of the same thing the longer you use it, which is closely correlated with the time it has existed in your possession. Apples lose value as they ripen to the point of being rotten; clothes lose value as they are worn from brand new to tatters.

For things like clothes and food, we can’t avoid depreciating assets, and they end up consuming a lot of our income. This fact is okay, because we plan our lives around our need for depreciating assets, and most of the time we don’t even think of our depreciating assets as assets at all, which is fair because when we buy an apple we seldom have any intention of selling it to someone else. For big ticket items like cars, our reality may be different.

A new car is the pride of many families, but a new car is also a very volatile depreciating asset; after all, just by owning it for a day, the value of a new car drops by up to 25% by some estimates. In addition to this massive value drop, new cars incur maintenance costs, just like used cars. The primary difference between new and used cars is that the maintenance costs of a new car are exclusively yours to pay for the duration of ownership, whereas a used car has had maintenance which you have not had to pay for, meaning that ultimately you will pay less for total maintenance.