Should I Lease Or Buy A Car: First Time Car Buyer Tips

Should I Lease Or Buy A Car: First Time Car Buyer Tips

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Should I lease or buy a car? To finance or lease….that is the question. This is probably the hardest, most basic thing to understand as an adult. Honestly, until recently, I never understood the difference between the two, the benefits or pitfalls. I also didn’t realize how much of a depreciating value a car has. That is, until I fell into the pitfalls myself and had to dig my way out of it. I wish I knew some first time buyer tips so I could have made an educated decision.

Surprisingly neither college nor high school prepared me for these kind of basic and normal financial decisions like should I lease or buy a car. Kind of crazy, right? We’re expected to just know these things when we go to the car salesperson, and if they fail to disclose all the pros and cons then we’re sh*t out of luck when things turn out pricier than we expect. As a teen, I never thought about my parents car payments or what it meant to finance something. A lease didn’t seem like a huge commitment. And since it was on my parents dime, a car really didn’t have a major cost to me.

But oh, did I learn…..

Here is what I learned for my first time car buyer tips :

A car is a forever depreciating asset. It will RARELY ever gain value and only if it’s a collectible. There will always be a cost associated with owning a car whether it’s leasing a new car, financing a new car or maintaining an old car. How much in cost can vary between those three typical options.

What most people want to do is minimize their cost for owning a car as well as the maintenance while still holding value.

Leasing:

When my husband and I got our first car, my father in law insisted that we lease. He had leased 2 of his cars and he and his wife had a total of 4 cars, each with light usage.

So we thought, his dad has a lot of experience and leasing works for him, it should work for us. We were WRONG!

Leasing did not work for us, at the end of the lease we owed $3K in overmileage fees! I knew it was coming but it didn’t make it less painful.

Leases have a set # of mileage that they allow for in the lease term. We signed up for a 36,000 3 year term lease which was a 12,000 per year allotment. This is standard. The issue was that this was our ONLY car, my husband drove this car to and from work every day and then we’d also use it for weekend errands. He didn’t work close either. It takes him an hour to drive to work in NY traffic so the mileage added up. We literally hit our mileage limit around 1.5 years into the lease. Here’s one of my favorite first time buyer tips, don’t sign for a lease until you have researched how far you need to go to work.

What made the lease attractive to us at the time was the low monthly payments. Our lease payments were $220 a month. (Don’t judge me, everything in NY area is stupid expensive including car leases). Financing would have been $400 a month, a price that was a stretch for us. Leases tend to be cheaper than financing.

So short term, the monthly payments were great, but in the end it cost us nearly as much as financing would have anyway.

At the end of the lease the dealership gave us the option to buy the car. This price was negotiated when we initially signed the lease, believing that we were able to keep under the miles restriction. So MSRP was $19,500, the negotiated rate after the lease expired was $13,850. So what we had was a 2017 Honda Civic with 55,000 miles on it. At that point it wasn’t even worth the $13,850 that we would have had to FINANCE at 6.9% APR!

I wouldn’t finance a house at that rate, let alone a car.

So leasing didn’t work for us because we drove it too much. I could definitely see leasing as a practical option for people that don’t drive very far on the regular basis and want to have a nice car for low cost.

People that constantly lease are able to get the best technology, the coolest specs, and the sleekest finishes. Since cars lose the most value in the first 3 years, leasers are able to enjoy the newness of the vehicle without the commitment or cost.

Financing

When our lease ended, we considered re-leasing but after our whole over mileage situation I realized it just didn’t make sense. Like I mentioned, they did offer to allow us to to buy out the car but the deal made no sense. With all the initial lease payments, the $13,850 buyout option and the 6.9% APR over the 6 year payment period, overall costs were expected to be closer to $27,000 for what was a severely depreciating asset that had an MSRP of $19,500.

Financing the car we leased seemed like a mistake. So we shopped around at another dealership. For us, it was really utttimportant to get a reasonable deal. We were already $3000 in the hole because of this huhthe over mileage.
Huh
We opted for a $22,500 u and hdue to great credit we were able to get a 2.9% APR rate. That’s over 1/2 hthe rate for the lease buyout option! It made more sense to finance a new car with little to huno mileage. The payments are going to be $500 for 5 years. At the end of the 5 uh we expect the car to have some value left. Our hope is that the car will still be well runningu so we can keep it after the payments are done. The 2.9% APR also saves us severauso getting a 5 year, 100K mile warranty on the car so at least then we had a good sense of what the maintenance cost would be at least for the first couple of years.

Long term, financing the new car seemed like a better deal than trying to salvage our 3 year old car by buying it out.

Leaving A Lease And Getting A Totally Different Brand Of Car

We could have considered paying out the end lease fees and overmileage and going with a different car brand other than Honda. But we were sure they wouldn’t be able to waive any of the fees or over mileage and I was concerned that when it came to the maintenance work that needed to be done that we would be over charged for damages.

For us, this option didn’t make sense since we already owed Honda $3000 in over mileage. I mean, the car was in OK shape, but had some dings courtesy of my husband. Those costs would have to come out of pocket now. We estimated total lease end costs to be $4000-5000 depending on what they found in the inspection. Then we’d have to go to another dealership, put down $2000-$4000 down to finance elsewhere. Negotiating in our position was only going to take us so far.

Leaving a lease and getting a totally different car brand seemed too costly for us because it would be a LOT of money up front.

Also staying brand loyal to Honda meant that certain things could be waived like the $900 lease end fee, some of the mileage (we got $400 back), and the upfront payment. We were also able to roll over the $3000 over mileage charges into the finance deal so it wasn’t going to be such a large up front payment.

As you can tell the $3000 over mileage really screwed us over and kept us from being able to take advantage of other options.

Best case scenario.
Personally I believe the best way to buy a car is to buy a used car all cash with no financing. Financing is a huge waste of money because you’re essentially paying interest on a DEPRECIATING ASSET over time at the same price for when it was new and full value.

The issue is that not everyone has a good chunk of cash (more than $10,000) to put down at once. It’s literally probably the best option out there for car owners but, honestly, hard to attain. Most people just don’t have that kind of liquidity and end up just financing out of the necessity of their transportation needs.
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So should you or I lease or buy a car? Overall, the car buying experience is very personal and for most people it’s quite pricey. A majority of Americans actually never buy off of a new car dealership, that’s how much of a luxury a new car is. I do feel lucky to be able to share this experience and my findings as someone who had NO IDEA what car buying entailed.

For my Husband and I, we started off on the wrong foot with getting a lease but at least moving forward we’re able to understand the significance of our purchase, how cars can add to your transportation costs, the value we’re getting, and the financial effects of our our decisions. Hopefully these first time car buyer tips keep you from making some of the same mistakes I did.

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How To Get To Early Retirement: FiRE and LeanFiRe Strategies

Get to early retirement Reddit LeanFiRe
Get to early retirement Reddit LeanFiRe

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“If only I didn’t have to go back to work.” I think this WAYY to often, especially on my Sundays before I have to clock back in for my work week. I often daydream about how to get to early retirement as I surf through reddit leanFiRe strategies.

My friends say, “Alex, I think it’s time for a new job. You’re burnt out. There’s another company that can be the right fit for you.”

But I think it’s much more than that. I think I just don’t like work. I don’t like feeling obligated to go and be somewhere at a certain time.  I don’t like commuting. I don’t like being on teams I didn’t choose for myself. I don’t like not being able to spend my time as I choose. And at the bottom of all those things I don’t like is the basis for a job. In college, I didn’t like not having money either so I went into the world and made a career for myself.

Sometimes I have to remind myself to grow up.  Like, having a job is just part of life. A majority of our society NEEDS to work in order to put food on the table or clothes on their back. But then I started to wonder about an alternative. What if, I didn’t have to work? What would it take to live like that? Is it possible for me?

That’s when I came across FiRe or Financial Independence and Retire Early. I’ve been following Personal Finance on Reddit for a while and stumbled across the subreddit. On reddit I also found LeanFiRe strategies. It’s not just people retiring early at 50 instead of 63. It’s people retiring earlier and younger at 35 and 40! I honestly can’t look through Reddit LeanFiRe without feeling a tinge of jealousy. I really want to be those people.  I want to know how to retire early. I also want to know how much I need to retire early.

The concept of FiRe goes beyond Personal Finance-which discusses getting out of debt, buying a house and paying for college, as well as other difficult financial choices that neither high school nor college ever prepared us for. FiRe is just specifically about retiring early and what it will take to get there and the kind of sacrifices you need to be willing to make.

Looking through the subreddit, I can’t help but feel…what’s the word for it? Ah yes, INADEQUATE. I feel inadequate because here are these 19 year old kids that are planning their hustle for the next 10-15 years to be totally independent off a job! At 19, I was buying Frappachino this and coach shoes that.  I was twiddling away my hard earned money because, at the time, I didn’t consider my minimum wage slave money to be……real money.  It was just money I was earning before I had a career; before I made a real salary.  Talk about regret over missed opportunity. Regardless, now that I’m aware this is possible maybe there’s time for me to turn things around.  I’m making 3-4X what I was making on minimum wage, so hopefully I didn’t miss too much of an opportunity.

Personal Finance and FiRe pretty much go hand in hand but FiRe is a long term game. Once you pay all of your debts and start really gaining wealth, FiRe commits to continuing to live a modest lifestyle until you reach your FiRe goal date. For people that are successful at FiRe, this means living at your parents home until you’re 30 or putting a $10K pay increase towards a portfolio option instead of taking a much needed vacation. It means couponing; living on a cash basis and giving up the convenience of the credit card.  It sounds so simple, “Just don’t spend money? I hate spending money, I only spend money when I need to!” But DO you? Do you REALLY??  Credit cards/subscriptions, Venmo are super convenient. For credit cards, any points you earn on the card are already spent on the overspending you did due to the “convenience.”  And we all like convenience. Retiring early means less convenience and less money spent on pleasures that we usually indulge in as a reward for hard work.

It takes an incredible amount of self control to retire early. Year after year, you’ll need to make sacrifices in your own indulgence, spending habits and choices. Vacation to Miami with friends? Nix that. Those really nice designer shoes? Nope. Weekly happy hour bar tabs with coworkers?  Um, no. Forget about the new car lease and living without roommates.  What you’re sacrificing in quality of life now, you’re planning to get back later when you’re able to retire 15-20 years early.

You’ll also need to be somewhat knowledgeable on tax laws. Should I invest in a 401K or IRA or both? What should I do after I max on my contributions? I’m about to surpass my income tax bracket, what can I do to minimize this years taxes? These are decisions you can’t just leave to the wind when planning an early retirement. Because year after year the wrong decision will cost you.

Once you start saving all this additional money, how do you optimize it to allow an early retirement? Well, that’s entirely up to you. Some people invest in individual stocks, mutual funds or rental properties, or a mix of diversified options. The choice is yours depending on the skill set you have. Some people like to park their money and not think about it again until they need it, some like to be more involved in the trades, others like the idea of home equity. Some enjoy high risk, others low risk. To make FiRe truly effective you’ll need to take some risk to optimize your hard earned money.

Now let’s talk Reddit LeanFiRe. What is that? How could FiRe get any leaner, you’re already cutting out the pleasures of life! Oh it can get leaner.  Way leaner. Some of you may have read this article rolling your eyes, like “I don’t make that kind of money, Alex. I’m not overspending and there’s nowhere to cut.” Lean FiRe is early retirement for those who make an average or below average earnings. I swear, the Lean FiRe Reddit is no joke! They will make feel shame for your current lack of retirement plans. These are people making 40K -70k a year (or less!), and killing it with their retirement goals.

How do they do it? Incredible sacrifice and resourcefulness. These are people who really hate their job and are like, “Oh hell no! I can’t be doing this forever!”

I read about this one guy that ditched his car even though it was a 40 minute bike ride each way. Luckily he lived in a place where the weather was nice nearly all year round. He was saving money off of the weather! Other people are gardening and living off the literal fruits of their labor and land, thus cutting down food costs.

Then there are the people who are extreme in their housing solutions. One guy was homeless for a year! You heard that, homeless! Like, living in his car and showering at the gym while going to work every day and pretending he had a home. The moral of that story is that he really saved a lot at the time since housing is probably our largest expense. A lot of the Reddit LeanFiRe people take to frugality and minimalistic living. There was one couple that bought a Tiny Home and lived in a trailer park. Their Tiny Home cost 15k and they bought it outright, then parked their home for a couple hundred dollars a month at a trailer park. They really didn’t need to earn so much money after that.

Theres also strategy to increase their income and put that money aside for retirement purposes only. These people were resourceful with their talents and skills.  They started blogging, and you-tubing to earn some extra cash. It’s a slow income stream but it’s cheap and easy to get into. Some opened etsy shops, making homemade soaps, balms, greeting cards, ornaments and whatnot. Some just did the good old fashioned way of getting a second job and driving Uber on the side.

Those Reddit subreddits really put me to shame. When I hear real life stories like that, I wonder WHY CAN’T I BE LIKE THAT?

Because I don’t want it enough. I’m not willing to sacrifice my daily pleasures or I do, and then I can’t stick with it long term. But practice makes perfect, and I’ll keep at it until I’m finally willing to make the sacrifice long term. In the meantime, I’m going to keep reading the inspirational stories FiRe and LeanFiRe have to share with me. Because with a little inspiration, who knows, maybe I’ll be able to retire early too.

Feel free to like, share and follow this post if you found it interesting.

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