TaxAlly — Lesson: The true cost of a car

Module 9 · ☕

The true cost of a car

Every other lesson is about putting money to work. This one is about the big purchase that does the opposite — a car loses value every year, and that lost value is wealth that never gets to compound.

1The idea

A house, shares, super — they're meant to grow. A car is one of the few large things you'll ever buy that almost always shrinks. It loses the most in the first few years, then keeps sliding.

So the price on the windscreen is the small part. The real cost is depreciation — the value that quietly evaporates — plus interest if you borrow, plus running costs. And there's a hidden cost on top: every dollar parked in a depreciating car is a dollar that isn't compounding in an asset that grows.

This is the mirror image of compounding. Money in the market doubles over time; money in a car halves.

2Who it's for

Everyone who buys cars — but the cost bites hardest if you:

Buy brand new — you eat the steep first-year drop the moment you drive off the lot.

Finance it — you're paying interest on something that's losing value the whole time.

Upgrade often — every trade-in locks in the loss and restarts the steepest part of the curve.

The honest flip side: you almost certainly need reliable transport. This isn't "never own a car" — it's "know what the upgrade really costs before you sign."

3The worked example

A $40,000 car, kept 8 years, losing ~15% of its value a year:

What the car is worth after 8 years~$10,900

Same $40,000 invested at 10.5%~$89,000

The swing~$78,000

The car didn't cost $40,000 — it cost the $29,000 it shed plus the $49,000 of growth that money would have earned. You needed a car; you didn't need that whole $40,000 tied up in one.

4Try it on your numbers

What this car really costs you

Car price

Keep it for 8 yrs

Loses /year 15%

If invested instead 10.5%

Set to ~10.5% — the long-run average return of the S&P 500 (the main US share index) with dividends reinvested. Real returns swing a lot year to year, so dial it down for a cautious view.

The car, after 8 years$10,900

That money invested instead$88,912

Lost to depreciation−$29,100

True cost vs investing$78,012

You need a car — so the lesson is the marginal dollar: every $10k less you spend is $10k that can compound like the green bar. Depreciation is a reducing-balance estimate; the first year is usually the steepest.

5The honest caveats

A car is a tool, not a villain. Safety, reliability and not being stranded are worth paying for — the goal is a sensible car, not the cheapest bomb on the lot.

Some cars hold value better. Make, model and demand matter — a few depreciate far slower than the 15% rule of thumb.

Running costs differ too. A cheap car that's thirsty or unreliable can cost more than a pricier, efficient one — depreciation is the big number, not the only one.

6How to action it

Buy lightly used (2–3 years old) and let someone else eat the steepest part of the curve.

Keep it longer and choose models known to hold value and be cheap to run.

Avoid financing a depreciating asset at a high rate — and invest the difference you save.

If you do need a new car, the next lesson shows the one tax-smart way to fund one — paying for an electric car from pre-tax salary.

Next lesson

Salary packaging & the electric-car novated lease

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General educational information, not personal financial advice. Depreciation rates vary widely by make, model and condition; investment returns aren't guaranteed. Figures are estimates to illustrate the trade-off.