Well, you seemed to think that it was a persuasive argument when you thought the facts were in your favor, so it should be a similarly persuasive argument in the other direction, right?
Data (not anecdote) shows that the vast majority of the wealthy choose not to lease; probably because there’s a very high cost associated with turning over your cars every few years, so the sort of people who lease are also the sort of people who lack the discipline to save enough to ever be rich.
Let’s assume that millionaires are 7% of the population and only 6% lease, that means that only 0.4% of leases go to the wealthy. Almost no one who leases is wealthy, and people should therefore be a little nervous about leasing if they ever want to be rich themselves.
You can argue that leasing is better than buying a new car every three years (which is probably not always correct because interest rates on leases are higher than interest rates for purchases), but that’s like saying being kicked in the balls is better than being stabbed in the face: any reasonable analysis would have to consider that both options suck.
Maybe my definition of wealthy isn’t the same as the one in your book? Maybe the data in your book is suspect and or out of date? I’m not going to follow you down that rabbit hole because it’s not relevant to my main argument. You can believe that very few “wealthy”(as defined by you) people lease if you like, it doesn’t make my argument wrong.
I made it abundantly clear what I was arguing in the other thread. Read it again if you like.
Leases don’t have an interest rate because they aren’t loans, people confuse that in good faith because a lot of online “lease calculators” do imply there is interest. What you’re actually paying is a “rent charge.” The rent charge is calculated in a somewhat arcane way using a money factor and various other things I’ve never cared to learn much about. Basically with a lease you are covering the owner’s loss due to depreciation in the vehicle + a profit margin for them. Just like when you lease a home you are paying enough to cover the owner’s costs of ownership (any mortgage payments and property taxes) and ostensibly if they are in it as a business venture your rent payment will represent an amount above and beyond the land lord’s costs of ownership (their profit.)
It can look similar to interest, but it technically isn’t.
The way I’ve always heard it is from a strictly dollars and cents perspective buying a used car is best, leasing a car is worse than that but better than buying a new car which is typically represented as being the “worst” financial option–primarily because you go into debt to get something that loses its value (and a large percentage) the moment you take possession of it.
Most of my life I’ve been of the “cars are an appliance, drive them til the wheels fall off” school of thought. However, I do think it is intrinsically wrong to talk about “equity” in a car as though it is a valuable asset/investment. Cars are basically like really expensive loaves of bread, they have value but it is always decreasing over time and you should never think of it in terms of your net worth or your overall investment situation. A house you can look at as a form of investment, but I’ve also said if your primary reason to buy a house is because you think it is a smart investment that is horribly stupid. A house only makes sense if you want a house, in that case it gets you what you want and a lot of your wealth is in an investment that tends to increase over your lifetime. If you’re truly only concerned about investment potential it makes far more sense to put money in an REIT or other similar fund if you want exposure to the real estate market.
Buying a house that will be your primary residence as an “investment activity” is akin to “going into the stock market” by putting 90%+ of your available resources into shares of one single company. No one would call that a wise investment decision. Buying a house of course isn’t stupid, it just doesn’t make sense if you only are doing it as an investment.
It can make perfect sense if you are you know, wanting to be a homeowner and wanting a stable living situation and a house you can modify to your own desires and etc. It’s also smart on the “household budget” scale in many situations, in many places mortgage payments are less than rent payments (again though, that varies from location to location, and over time) and there are income tax advantages to having a mortgage.
Feel free to provide your own data. Until you do, I’ll consider my source more authoritative.
This isn’t that thread, it’s a new thread with a different OP, for which the only correct response is that Suzie Orman recommends against leases because they’re expensive.
Arguing that leasing can be cheaper than buying a new car every couple of years kinda completely misses the point; I don’t listen to Suzie Ormand, but I’m willing to bet she doesn’t argue against leases because she thinks you should buy a new car every couple of years instead.
I won’t, because even if no one in the history of humanity has ever leased a car and the whole leasing thing is a figment of my fevered imagination, I would still be right. If you read the bit you quoted again, I never claimed that “wealthy people lease” is a REASON why leasing is good, it’s actually the other way around.
It may not be called an interest rate, but multiply that “rent charge” by 2,400, and you’ll see a number that looks and acts an awful lot like an interest rate. There may be legal differences, but you can calculate your lease payments treating it as though it were an interest rate.
Leasing will only ever be better (and by this I mean “cheaper”) than buying if at the end of the lease term you keep the car. More likely, if you enter into a new lease every time the lease runs out versus buying and keeping a new car, the buying and keeping a new car will be cheaper than leasing. Sorry if I’m saying something obvious, but just responding to the OP.
I have no idea what you’re talking about here, so do me a favor; explain to me in small words how the thread you linked to answers the OP’s questions about Suzie Ormand. Do you know who Suzie Ormand is? Do you know what she does?
OK, but you were wrong in your facts. So, please explain your quote for me taking into account that you are wrong about wealthy people leasing.
You can multiply the “rent charge” on an apartment by 2,400 as well and it will also look and act like an interest rate.
Yes, but you’re not comparing like to like. No one leases a car for 10 years. There is no reason to lease **or buy a new car if your primary interest is not getting a new car but instead just having a car. If “simple car ownership” is your only concern, and you aren’t interested in having a nice shiny new car or certain features currently only available in brand new cars then it never makes sense to drive a new vehicle. However, if your interest is in driving a new vehicle, leasing is always better than serial new car buying. The simplest reason is leasing will almost always be a lower car payment than a car loan for a brand new car, and if you are always driving new you will always have a car payment unless you are wealthy enough to buy a car with cash every few years. In which case honestly your financial situation is such that you don’t need to debate or worry much about the pros and cons of leasing a new car versus getting a loan to buy a used car.
Odd. One of the many things I’ve found most grating about Ms. Orman is she only has advice for people who have at least a little bit of money to begin with. Once (I was watching her show because I hate myself) she told a man, who was earning some $25,000 a year with a seemingly endless shitload of master’s student loan debt, that the solution to his financial woes was to “stand in [his] own truth.” What the fuck does that even mean? She seems to tell people who are already stable and have incomes to choose Roth IRAs, or something else generically worthless like that, but knows precisely fuckall when it comes to real money issues.
Anyway, as has been said, car leases are a tax write-off for most people. A vehicle used for any business purpose can be written off.
Only if the rent charge on my apartment were 0.000025, which unfortunately it isn’t.
Given the topic of the thread, which is essentially “Why does Suzie Ormand Recommend Against Leasing,” I think that comparing like to like is a mistake. I don’t listen to Suzie Ormand, but I know who she is, so I suspect that if you asked her if you should lease a car, her response would be something like:
“There is no reason to lease **or buy a new car … it never makes sense to drive a new vehicle.”
I don’t know who she is. Is “Who is Suzie Ormand?” the question he asked? I offered the linked information with no further comment. If you were in fact looking for information on Suzie Ormand then you won’t find it there and I’m sorry you were misled.
I most certainly was not wrong in my facts, but I tried to be gracious and explained to you that even if I were, it was irrelevant to my main argument which is in fact on the subject of capital cost budgeting and not the income demographics of the United States. If you are still not seeing this then I’m afraid I can be of little further service to you.
“There’s no such thing as any equity in a car.”
What? If my car is paid off, and someone will buy it for $5,000, how do I not have $5,000 equity in my car?
Pity you don’t have access to a computer, then you could go on Google and find out who she is. In fact, you could type in “Suzie Orman car lease”* and reach the following page: http://biz.yahoo.com/pfg/e16buylease/. "buy a new car but make sure it is used. Let me explain. New cars depreciate 20 percent to 30 percent the second you drive them off the lot. So if you really want to be smart, make someone else’s mistake your lucky day. Buy what I call a new used car "
You should call up the authors of “The Millionaire Next Door” and explain that you know better than them about whether wealthy people own or lease. You can reach the primary author here: http://www.thomasjstanley.com
*Turns out her last name is spelled Orman, which I didn’t know, and shows how little I know about her.
Buying stuff used is cheaper than buying stuff new? Astonishing. They should make this Suzy Orman Secretary of the Treasury.
Thanks Mr. Stanley/forum poster Evil Economist, maybe I’ll buy your book too? How did you know I buy all my stuff based on spam advertising on internet message boards?
Which you might have seen when you quoted his question is its entirety when you responded to him.
Turns out that the answer to his question is that Suzie Orman thinks you should never buy or lease a new car, and should instead buy a used car, which is good advice for the sort of people who listen to Suzie Orman (bad with money, probably in debt).
She does say something about buying vs. leasing, but the link doesn’t work. I’ll go out on a limb and say she’ll recommend against buying new unless you can pay cash, so she’ll similarly be against leasing. That’s an educated guess, though.
Sorry for not being clear. I meant when financing a car, there’s (usually) no equity while you’re making payments whether you’re leasing the vehicle or have taken a loan in order to ultimately own the car lien-free. While not a necessarily literal set-in-stone rule, when financing a car, more is generally owed than what the vehicle is worth. Yes, if you intend to own, in a few years (most frequently five) the car is paid off and you have a vehicle that you can potentially own for many, many years and not have to make a monthly payment on, and/or sell and get some money out of, which are good things and not options with leasing.
My primary objection was likening renting/owning a car to renting/owning a dwelling. A car is not really something that is building value while you’re making payments on it. Well, neither are houses at the moment, but that’s another story.
Ummmm…the book doesn’t need my advertising; it’s pretty well known. According to the website, it was on the New York Times bestseller list for 3 years and sold millions of copies.
This is something else that having access to a computer could help you with.
Right, and I can understand a financial adviser saying that. Of course the reality is that even I, someone who mostly values cheap hobbies and simple pleasures, recognize that life should be about living and enjoyment of that life. For some people that means buying expensive things, that are not required or necessary, but are a luxury. I don’t judge the way someone else decides to enjoy their life.
Where I will judge, just to note that it is foolish, is someone who engages in frivolous amounts of luxury spending when they cannot properly cover the costs of their necessities. If you are in danger of being evicted from your apartment or defaulting on your mortgage but you’re driving a car with a $600/mo. payment I highly question the wisdom of that.
The issue of course is deciding rationally how much that luxury is worth to you and being aware of what the cost actually is.
A car loses something like 32% of its value in the first year, and the average new car costs a bit more than $28K on average.
So over three years the depreciation of a typical new car costs you about $13,700. The next year would only cost $2800 more and each additional year would cost you much less. The consumer buying that average car needs to ask themselves if the joy of having a new replacement car that is new to three years old, over extending ownership to a car that is the next three to six years old, is $6 to 8K worth of pleasure or if they would get more enjoyment using that money for some other luxury(ies) instead. Or, of course, saving it.
As long as the decision is made with awareness of the true expense of the luxury then fine. I’m just not so sure many are aware of how much they are actually spending for that luxury.