Kind of getting sick of all the redundancy. Can someone whip up a thread, and the admin make it sticky?
Include "tricky" items such as cash flow Vs. net worth(two very different things regarding truck depreciation). Taxes are also important.
Probably the biggest fumble I see in doing the math is truck deprecation Vs. truck payments.
For example, a $130,000 truck(cdn) over 5 years at 10% interest is $2750. Each year that's $33,000.
Cash flow : Well that ones easy, it costs you $2750 a month
Real Depreciation: I'd probably say $100,000 in 5 years. That's 20k a year. Much different then what you're actually paying.
Government depreciation(canada): 20% first year, 40% each year after that.
The problem with the 3 differences, is that the driver understands the first one very easily, its coming right out of his pocket. The second one is very very vague, because who knows how much your truck is worth? It probably drops 15k the moment you drive it off the lot. The third one is the stinker. I'll show why:
year 1 depreciation is $26,000. $104,000 left
year 2 depreciation is $41,600. $62,400 left
year 3 depreciation is $24,960. $37,440 left
year 4 depreciation is $14,976. $22,464 left
year 5 depreciation is $8985. $13,469 left
So the government lets you writeoff a value that is completely different from your 'cash flow' and nowhere near what the truck actually depreciates.
Now imagine in year 3-4 when the government of canada comes to you early(september) asking for next years income tax! In 4 short months you are paying 2 years worth of tax! Not only that, the 3-4th year you cannot write off as much as you are actually paying! You're paying MORE taxes, in a much shorter time frame. Yet you still have those huge payments, with no relief in sight. On top of that now those repair bills start coming in!
Or how about the 5th year. You're still paying $33,000 a year yet you can only write off $8985. This is where most people panic, and trade off their truck. HUGE mistake.
But if you actually make it, free of those huge payments, now is the time to make real money. This is when your truck depreciates the least. Your cash flow situation looks great, and your net worth looks better then it ever has(due to less future actual depreciation). Yes you will be paying more to the government, but that's how it works. You make more, you pay more.