{"id":84,"date":"2012-01-05T00:30:45","date_gmt":"2012-01-05T05:30:45","guid":{"rendered":"http:\/\/www.cashflownavigator.com\/blog\/?p=84"},"modified":"2012-01-18T01:25:25","modified_gmt":"2012-01-18T06:25:25","slug":"is-leasing-your-next-car-a-good-idea","status":"publish","type":"post","link":"https:\/\/www.cashflownavigator.com\/blog\/2012\/01\/is-leasing-your-next-car-a-good-idea\/","title":{"rendered":"Is Leasing Your Next Car a Good Idea?"},"content":{"rendered":"

\"\"<\/a><\/strong> Have you ever heard someone say that a car, or a truck, is a big investment?\u00a0 I disagree.\u00a0 Yes, it can be a big outlay.\u00a0 But a vehicle isn\u2019t an investment, because investments are supposed to appreciate, or increase in value.\u00a0 Vehicles definitely don\u2019t do that.\u00a0 Instead they depreciate, or lose value.\u00a0 And they do so very quickly.<\/p>\n

A better way to think of a vehicle is as an expense<\/em>, not an investment.\u00a0 And if you fall for (or into) the lease trap, this expense can become even more costly, slowing your progress towards financial independence.<\/p>\n

In our last article we noted that all assets can be classified as either \u201cBest\u201d, \u201c2nd<\/sup> Best\u201d or \u201cWorst\u201d based on two considerations:<\/p>\n

1)\u00a0\u00a0\u00a0\u00a0 Does the asset appreciate or depreciate, and<\/p>\n

2)\u00a0\u00a0\u00a0\u00a0 \u00a0Does it generate positive or negative cash flow.<\/p>\n

Vehicles clearly fall into the \u201cWorst\u201d asset type category because they depreciate and also generate negative cash flow.\u00a0 It\u2019s best to avoid \u201cWorst\u201d assets, but some \u2013 like a car \u2013 can be necessary.\u00a0 So if you do need one you should try to minimize the financial damage.\u00a0 This can be done on two fronts: by minimizing the size of the asset<\/strong>, and minimizing the negative cash flow.<\/strong><\/p>\n

By regularly renewing leases you commit yourself to <\/strong><\/p>\n

monthly payments indefinitely.\u00a0 Buying<\/em> a vehicle<\/strong><\/p>\n

gives you an opportunity to not make monthly payments.<\/strong><\/p>\n

Minimizing the size of the asset is pretty straightforward \u2013 buy a vehicle that doesn\u2019t cost too much, and one that will give you as many maintenance-free (or low maintenance) years as possible.\u00a0 Despite becoming more complex, many cars can now run reliably for 10 or more years and over 200,000 miles if maintained properly.\u00a0 And you can find one for a relatively low price \u2013 under $20,000 for a compact and less than $25,000 for a mid-sized vehicle.<\/p>\n

The lower the price, the sooner you can pay it off and free up monthly cash flow, right?\u00a0 Not necessarily so with a lease.\u00a0\u00a0 Vehicle dealers and their financing arms structure leases in a way that can create a dependency on them.\u00a0 It goes like this: Lease the vehicle for a low monthly payment and then when the lease expires exchange your vehicle for a new vehicle and a new lease.\u00a0 And a continuation of monthly payments. \u00a0This cycle can repeat itself indefinitely.\u00a0 This is the lease trap.<\/p>\n

By committing yourself to always having monthly lease payments you lose the opportunity to not have any.\u00a0 \u00a0That option \u2013 the option to not make monthly payments \u2013 comes with the choice of buying<\/em> the vehicle.\u00a0 If you buy it with, say, a 5 year loan and keep the car for 10 years you eliminate 5 years of monthly payments.\u00a0 Let\u2019s say your monthly payment is $250. That\u2019s $3,000 saved per year and $15,000 for the full 5 years.\u00a0 Think of the other debts you could pay off with that savings.\u00a0 And if you prepay the loan in 3 years instead of 5 the total grows to $21,000.\u00a0 That can go a long way in helping you get ahead financially.<\/p>\n

There are instances when a vehicle lease might make sense.\u00a0 For example, if you use the car or truck for business purposes.\u00a0 But in most other cases a lease can create a trap.\u00a0 It\u2019s a perpetual negative cash flow trap.\u00a0 Try to avoid getting snared.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Have you ever heard someone say that a car, or a truck, is a big investment?\u00a0 I disagree.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,9,3,13],"tags":[],"class_list":["post-84","post","type-post","status-publish","format-standard","hentry","category-assets","category-cash-flow","category-financial-planning","category-investments"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/84","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/comments?post=84"}],"version-history":[{"count":19,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/84\/revisions"}],"predecessor-version":[{"id":102,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/84\/revisions\/102"}],"wp:attachment":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/media?parent=84"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/categories?post=84"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/tags?post=84"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}