depreciation

Example

“The car's depreciation meant it was worth only half its purchase price after four years.”

Memory Tip

DE-preciation — de means down. Depreciation is the value going DOWN.

Why It Matters

Understanding depreciation helps you make smarter decisions about major purchases like cars and equipment. It shows you how much value you will lose over time, which is crucial for budgeting, calculating tax deductions, and determining whether buying or leasing makes more financial sense for your situation.

Common Misconception

Many people think depreciation only applies to physical assets like vehicles and buildings. In reality, depreciation affects nearly all tangible assets including furniture, electronics, and machinery, and understanding it helps you recognize that most purchases lose value rather than holding their worth.

In Practice

If you buy a car for 30,000 dollars, it might depreciate by 20 percent in the first year, losing 6,000 dollars in value, leaving it worth 24,000 dollars. After five years with continued annual depreciation, that same car might be worth only 12,000 dollars, meaning you have lost 18,000 dollars in total value despite the car still being functional.

Etymology

From Latin 'depretiare' meaning 'to lower the price of' — the price goes down.

Common Misspellings

Related Terms

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