Podcast Summary
Used car market conditions impacting affordability: Consider both financial and psychological factors before buying a car, as used car prices are high and cars are depreciating assets that can lead to financial strain. Keep car-related expenses under 10% of take-home pay.
The used car market has experienced significant price increases due to the chip shortage and fewer new cars being produced. This has made used cars more expensive than in previous years. While the advice for buying a used, inexpensive car to build wealth quickly still holds true, the current market conditions may make some consider buying a new car instead. However, it's important to remember that cars are depreciating assets and can be a money pit on wheels. The American obsession with cars often leads people to spend more than they can afford on car payments and insurance. To avoid financial strain, it's recommended that car-related expenses should not exceed more than 10% of take-home pay. Overall, the current market conditions add complexity to the decision-making process for car buyers, and it's crucial to consider both financial and psychological factors before making a purchase.
Considering the long-term financial implications of owning a car: Evaluate financial situation and priorities before deciding between buying or leasing a car, considering potential benefits like lower monthly payments and covered maintenance costs, but also long-term costs and lack of ownership
While the cost of owning a car can seem reasonable on the surface, it's important to consider the long-term financial implications, especially in today's market. The speaker shares his personal experience of spending over $400 per month on a used car, which accounted for about 10% of his take-home pay. He notes that things have changed since then, and leasing a car might be worth considering due to its potential benefits, such as covered maintenance costs and lower monthly payments. However, it's crucial to keep in mind that leasing means never fully owning the car and potentially facing higher costs in the long run. Ultimately, it's essential to carefully evaluate your financial situation and priorities before making a decision.
Paying for a car's depreciation in leasing: Leasing a car can be costly due to steep depreciation. Buying a used car or reconsidering car ownership can save money.
Leasing a car can be an expensive option due to the steep depreciation costs in the first few years. When you lease a car, you're essentially paying for the largest portion of its depreciation and then giving it back. For example, if you lease a $36,000 car and it's only worth $20,000 after three years, you're paying for the $16,000 difference plus interest. This is why buying a car that's a few years old and will last at least 10 years can be a more cost-effective option. However, the current market condition with used cars being irrationally expensive presents a challenge. Buying a car can also be a significant expense with the cost of insurance, gas, maintenance, and down payment. Ultimately, the decision to lease or buy depends on personal circumstances and priorities. Another unconventional takeaway is that maybe you don't need a car at all. With the rise of bike-friendly towns and the availability of public transportation and ride-sharing services, owning a car might not be necessary for everyone.
Working from home saves transportation costs, becoming a one-car family: Working from home can save $300-$500 monthly on car expenses. Consider ride-sharing services for lower mileage driving.
Working from home can help you save money on transportation costs by eliminating the need for a second car. The speaker shares her personal experience of becoming a one-car family and the financial benefits they've gained from it. She mentions that they spend only around $30-$50 a month on Ubers, significantly less than the $467 she used to pay for her car payment, insurance, and gas. If you live in a densely populated area and drive fewer than 10,000 miles per year, studies suggest that ride-sharing services could be more cost-effective than owning a vehicle. However, the speaker also acknowledges that for some, owning a car might still be a priority, and she shares her aspirational desire to own a Porsche Macan. Despite the high cost, she recognizes that people buy Porsches because they want them, not for their affordability.
Our financial decisions are influenced by emotions and societal biases: Understanding emotions and societal biases is crucial when making financially sound decisions. Leasing can be a financially savvy option when done correctly, but it's essential to consider personal experiences and societal expectations in the decision-making process.
Our financial decisions are not just about numbers, but also about emotions and perceptions. The author shares an experience of feeling like an outsider when inquiring about a luxury car, leading to a conflict between wanting to prove herself and feeling inferior. This incident highlights how our past experiences and societal biases can influence our financial choices. Jorge Diaz, the author of "Car Leasing Done Right," offers a compelling argument for leasing cars as a financially sound option when done correctly. He compares leasing to the buy versus rent discussion in real estate, emphasizing that leasing provides a convenient and low-cost solution for transportation needs while assuming less risk. Both the author's personal experience and Diaz's thesis illustrate that our financial decisions are influenced by various factors beyond just the numbers. Emotions, societal expectations, and past experiences all play a role in shaping our financial choices. It's essential to be aware of these underlying influences and make informed decisions that align with our values and goals.
Lease or Finance: Which is Better for You?: For high-mileage drivers, financing may be more cost-effective due to depreciation and maintenance. Conversely, for those with lower annual mileage, leasing could save on monthly payments.
The decision between leasing or financing a vehicle depends on individual circumstances, particularly driving habits and financial considerations. For high-mileage drivers, such as those using their vehicles for commercial purposes, financing is typically the better option due to the rapid depreciation and high maintenance costs. Conversely, for those who drive less and prioritize convenience and lower monthly payments, leasing might be more financially prudent. Using the example of a Honda CRV, leasing for three years costs approximately $400 less per month than financing for six years. However, it's essential to remember that these figures can vary based on the specific make, model, and terms of the lease or loan. Ultimately, it's crucial to evaluate your unique situation and financial goals before making a decision.
Total Cost of Ownership: Used vs New: Consider maintenance, depreciation, and financing or lease payments when deciding between a used car and a new one. Newer cars might have lower overall costs due to inflation, but used cars can have lower upfront costs. Individual circumstances, driving habits, and budget are crucial factors.
When considering the decision between buying a used car and financing versus leasing a new one, it's essential to factor in the total cost of ownership, including maintenance, depreciation, and financing or lease payments. For instance, a 6-year-old Honda CR-V might have a yearly maintenance cost of $1,980 and a depreciation hit of $2,150, leading to a significant loss in value. On the other hand, leasing or financing a new car every few years could result in lower overall costs, especially when factoring in inflation. However, luxury vehicles may have higher maintenance costs and financing might be cheaper than leasing. Additionally, the current used car market is experiencing unusual price fluctuations due to semiconductor shortages and inventory issues. Ultimately, the best option depends on individual circumstances, driving habits, and budget.
Leasing vs Buying: Savings Comparison: Leasing a car can save around $3,200 in the first three years compared to buying and financing, but fuel, sales taxes, maintenance, and potential repairs costs should also be considered.
Leasing a car can save you around $3,200 in the first three years compared to buying a car and financing it, based on a 36-month lease with added wear and tear coverage, assuming Florida state taxes and inflation. However, it's important to note that this calculation doesn't account for fuel costs, sales taxes, or maintenance costs during the lease period. Additionally, if you choose to buy a used car after the lease term, the car's value will depreciate significantly, and you may need to spend extra money on maintenance and repairs without a warranty. For instance, replacing tires, shock absorbers, springs, brakes, and a battery can cost around $3,000 in total. Therefore, the actual savings may vary depending on individual circumstances. It's essential to consider all factors, including the car's condition, maintenance requirements, and potential unexpected repairs, before deciding between leasing and buying.
Consider long-term savings when deciding between leasing and buying a used car: Build up a savings fund for maternity leave, consider flexible work arrangements or negotiating with employer for benefits
When making a decision between leasing a car versus buying a used one during a time of high demand and inflated prices, it's important to consider the potential long-term savings from leasing, despite the higher monthly payments. Leasing can provide the opportunity to lock in the residual value and buyout number, allowing you to wait out the supply chain issues and potentially save money in the long run. However, this may depend on the specific vehicle and your individual circumstances. Additionally, it's important to note that incentives for leasing, such as low rates or no money down offers, may be harder to find in today's market due to high demand. As always, it's essential to do your research and consider all factors before making a financial decision. In Erin's question from the Rich Girl Roundup, she asked about managing maternity leave finances. My advice would be to build up a savings fund specifically for this purpose, as company-provided short-term disability may not cover your full income. Consider creating a budget and setting aside a portion of your income each month to build up this fund. Additionally, exploring options for flexible work arrangements or negotiating with your employer for additional benefits could also help ease the financial burden of maternity leave.
Financially preparing for a pregnancy: Calculate income loss during leave, save for unexpected expenses, and ask about family leave policies to ensure a smooth transition into parenthood.
Planning financially for a future pregnancy is crucial, even for those who are financially stable. While companies may offer paid family leave, it may not cover the entire income loss during that time. It's essential to calculate the net costs and savings needed to replace income during the leave period. Additionally, having a savings nest egg can help cover unexpected expenses related to having a baby, such as medical bills and baby supplies. While it's possible to have a baby without significant savings, having a financial plan in place can reduce stress during the first few months of parenthood. It's also important to be aware that while it's illegal to discriminate against pregnant employees, some companies may not offer generous family leave policies. Therefore, it's essential to ask ahead of time and consider the potential costs and savings to ensure a smoother transition into parenthood.
