Leasing versus owning, how to save more

Outsmart 'em and save more by using this car trick....

-Middletown NY

       While people complain about not having enough money at times, you look and see major errors in their judgement, don't you? We all have that friend, or spouse, who says "oh I don't know how I am going to retire someday!" while they show off their brand new expensive accessory!

There are some simple tasks you can use to adjust or modify your finances. One is understanding money and time as it relates to one of the larger expenses or assets you have. Your money can either grow or depreciate based upon how you invest it. This is about how to save more money for the long run by realizing how much leasing a car can cost.

I have been saving for my whole life, and I would not be comfortable now if it were not for the discipline and technique we can focus on today. Remember these few hacks and you will be better off for it.

The last time I bought a new vehicle was when I was poor, young, and thought it would make a difference in finding a wife! Many years went by and when my truck was old I finally found a wife who could care less about my cool truck. The vehicle you drive will not make real friends.

That truck cost a lot, and monthly payments for 5 years totaled $32700 from 1991 to 1997. That total included $8000 in interest. In 1997 the truck was worth $12250 and had 50,000 miles. I lost $20450,  the down payment, fees, and taxes of $4189 of my investments value in 5 years. That equals $4090 per year or $340.83 per month. At least I owned and it did not lease it.

An average vehicle owner spends about $432 per year on repairs and maintenance (varies by state and vehicle type), of course some spend more, but the point is some more some less, even the largest issues cost less except a crash with major body work. Over those years I wish I could keep those car payments. I thought about it every day. Every month when I made that payment, it was painful. I thought to myself, of all the cars I fix every day none are that bad. Not as bad as $4090 per year.

I imagined my life had I not spent the payments and instead purchased a used truck with 60k, you could look at it a few ways:
1. the used truck cost $12500 and in five years is probably worth $3000 but I did not pay out the $20450 and it only lost $9500 in value for a better result of $7900
2. had I set aside the average $432 in repairs and maintenance costs for a vehicle with 60k to 110k of that type I would have $2592 in the bank for those repairs, it's possible earning a small interest.
3. I would not worry much about my vehicle and reduce stress

Depreciation is the word and it wraps up the dirty little secret. An article by Nerd Wallet sums it up but does not delve into the mathematical facts. Used cars loose less dollars of depreciation at a slower rate over time. The curve as expressed on a graph is

At some point you have to be getting really stingy or even to look into the yellow area to buy a car, however any car that runs and passes inspection has good value. If it gets you to work or the store its worth it for the fact of its purpose. Plus who cares if it gets a dent or scratch? No stress and cheaper insurance. The point here is that you are not losing much money down at these levels, and over time - 5 years of payments is way more than the car cost you. In fact you could afford to pay someone to wash it, detail it once or twice a year, repair it and have plenty of money left over.

Lets use the same chart for leasing - just humor yourself for a moment if you would be so kind. A person who leases an average car is paying $399 a month and if leased for 3 or 4 years at a time and traded back to a new lease you would have spent $48,000 in 10 years and owned nothing. Had you purchased a newish used car lets imagine 4 year old Rav4 for $15000 with low miles in great shape you would have a 14 year old rav 4 with 180,000 miles, not out of the norm for modern cars and if you cared for it well it will probably still be worth something and you would have saved $33,000. Leasing is good for wealthy people who can write it off or who make a very high hourly rate such as a licensed professional where time is the problem more so than money. If you entertain clients in your car then image is truly part of your job and you need a very clean and pretty car. 

I started this as an exercise to convince myself that it might be ok now for me to buy a new car, to analyze the worth and main effects and interactions. While we don't have time for all that you might consider in this short article I suggest that a conclusion is generally buying used or keeping your car is a better method to retain cash and grow your wealth. This is further indicated by the national vehicle age that has risen to 12 years due to the higher quality of modern vehicles, they simply last longer.

Use your scenarios to analyze your specific situation and chart out time in your analysis to determine what is worth it for you. One suggestion is to have a car repair account that you make a scheduled transfer to monthly and let it build up so that when repairs are needed its no stress. On a future post I want to consider easier ways to pay for the inevitable things that age and environment cause with all machines. Thanks for reading and please share or repost to help me if I have helped you in some way.

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