So where to begin. Again, budget. The wife and I in Spring 2018 sought out a vehicle and put a budget of $650mo on it. Slice that however you want, it's about a $32k vehicle and we were flexible to maybe $35k if we paid cash or financed it. Now back to the cost of money thing.....paying cash back then, not the best move. We can afford $650 so if that's the case, why would we pull $35k out of investments making more than the roughly $3,300 in interest over the cost of the loan. That's the key. Shoppers need to have a budge and understand the cost of money over time. If you're $35k is invested wisely, it should be pulling in far more than that interest over the course of 5yrs. Reality is $35k at 6% over 5 years with no additional equity added, just the interest earned rolled over will net you nearly $17k by the 60th month. That's exactly what the banks do when they take your money so if you have a small amount of money, USE IT and let it work FOR YOU not for the bank. THAT is the idea behind leasing and here's how it works in action.
The above is a finance or cash situation. Makes sense and is fine for those that don't understand money but equate no car payments to being successful. It also works for those that perhaps don't have a savings and have no choice but to borrow money. The key for those people STILL centers around the cost of money. If you lease or finance, both are LOANS and both are other people lending you money to acquire a vehicle. So what do you do with that money? Time to change up how you buy a car and think about it through the lens of money working for you. You already KNOW it's going to COST you to drive from A to B so how expensive that cost is remains your budget. That budget centers around your needs and wants. We wanted a NICE car but it didn't need to be. However, we did want a loaded and very nice car either way.
The old argument around leasing is that it's just lost money you never get back, blah, blah. Not true. In the case of a loan, that lost money is in the interest you're paying but also the loss of money working for you which as noted prior is actually MORE, like 2-5x more than just the interest. So how do you approach things? Scale back and save. By that I mean this. If we buy a $32k CUV that's 3yrs old with low miles we were looking down the road at 60mos of payments. At the end we'd have an 8yr old likely 96k-120k mile used car. A quick used car search for that same model at that point in time with those years and miles on it showed it would likely only bring $13-15k on the used market. Nonetheless, equity that the guy leasing doesn't have right? WRONG. Not nit-picking here but over those 5yrs as the vehicle ages, there's maintenance and repair costs. Tires and Brakes alone chip away at that net-equity. You can't ignore it. Thus for the sake of argument, I'm going to target the lower end, $13k as the net-goal to hit in this scenario.
Keep in mind too, that we're only leasing for no more than 36mos (more on that later) thus we'll be in TWO NEW Cars over the course of this endeavor. Pretty cool considering at the 3yr mark the guy who financed, is then in a 5yr old car about to put brakes and another set of tires on it given the mileage he likely has.
Done correctly, we then looked at the $13-15k as our new goal. After-all, 60 months later we want that $13-15k equity too. So how do we get it if we're leasing? THIS is where 99.9% of buyers fail and lose out. The answer is simple. SAVE and INVEST it. Doing so is easy. To get a nest egg that is equal to the guy who financed and now OWNS the car means I have to save $13k in 60 months or roughly $180-215 mo. and divert that money into investment account. If you can't see how that's better than sinking it into a depreciating asset (the vehicle) sitting in your driveway or garage exposed to all kinds of RISKS, then you really need to see a financial advisor.
So what that means for us is we now switched from buying a 32k used vehicle to looking at and being flexible on vehicle choice to find the a CUV that can offer us all we want for the difference of our budget $650mo less the $180 to $215mo or $435-450mo payment. Just reverse engineer the money with a basic investment calculator. It's easy.
So what we did was we found a 2018 Lincoln MK-C Reserve FULLY loaded at $51k that with no money down (NEVER put money down as a cap-cost reduction on a lease) offered us a NEW far nicer vehicle for a 36mo lease payment of only $453.28 per month. The rest is history as you all saw me posted up shots it over that time. I ended up turning it in and walked away and the true story is we picked up her Mazda CX-5 and had that nest egg of money left to either use to pay for it or to fund other things. It's not rocket science, it's called understanding cost of money and that LEASING is about having MORE OPTIONS and maintaining YOUR EQUITY aka Cash/Investment/Money in YOUR Pocket not that of the banks.
That is how it's done. You can drive a nicer vehicle, stay within your budget AND have equity at the end. The guy who purchased and paid off his car......great, he has a title in hand for a depreciating asset that he was upside down on for roughly the first 3.5yrs and now has that equity tied up in his garage. I on the other hand had my $180 mo in equity from day one working for me in an investment that was at little to no risk and readily accessible to me recognized as appreciating asset. See the difference?
Hope my long winded post isn't too confusing. Happy to help where I can if there are questions.
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