Looking to buy or lease a new car, but don’t know which one makes more sense for you? Buying or leasing a car or vehicle will ultimately come down to your needs and wants, but most importantly, what your budget allows. There are positives and negatives to both buying and leasing, however, you the consumer, must make the decision based on your financial situation and what makes the most sense for you. Here’s a quick breakdown of the pros and cons of buying vs. leasing a car to help you make your decision.
Pros of Buying a Car
Perhaps the simplest and biggest benefit of purchasing a vehicle is that you’ll actually own it at some point. This is the plan anyway. If you can pay for your car outright, this means you are free of all payments, you are not locked into any fixed ownership period and you have the ability to sell the vehicle at any time. It’s officially yours. You own it. Do what you wish.
Buying the vehicle will also give you lower insurance rates, typically, and also gives you the freedom to drive and drive without worrying about those mileage fees (we’ll discuss this further shortly).
Cons of Buying a Car
For starters, the first downside to buying a car is that your monthly payments will probably be higher when you purchase. Next we have the upfront out-of-pocket costs and maintenance costs. If you are buying from a dealership, they tend to require a much larger down payment than if you leased the car.
Another negative in choosing to buy over lease has to do with the equity and depreciation. Typically, as you continue to pay down your vehicle’s monthly payments you are building equity, meaning the value of the vehicle is greater than the amount owed. However, this is not always the case. Depending on the depreciation, how much of an asset’s value has been used, and the amount of down payment that was used, you may end up finding yourself living behind the 8 ball and always owing more money than what your vehicle is worth. This has to do with how the monthly payments are set up. Much like a mortgage, your vehicle payments will be split into paying off the principal and interest. Since most of your monthly payment will go towards the interest rather than principal, and the average car depreciates at about 15% per year, you, the consumer, are left with extremely little equity in your new vehicle.
Watch Out for the Monthly Payment Scheme
One tip from our President is to avoid the monthly payment scheme. Dealers may entice you with a low monthly payment, but will have to extend your payment period for five to six years. The reason this may come back to haunt you has to do with the worst case scenario, if you crash and total your car. The insurance company will cut you a check for the amount the car is worth at that time, which will probably be a lot lower than what you owe. So now you’re stuck paying off the rest for a car you can’t even drive anymore. Not cool.
Pros of Leasing a Car
So, exactly what is a lease you ask? A lease is legal document that allows one party to rent or use an asset from another party in exchange of payments for a predetermined amount of time, which tends to be 36 or 48 months for vehicles.
Leasing tends to have some immediate benefits. For starters, the down payment tends to be either extremely low, when compared to buying, or waived altogether. You are also not required to pay any upfront sales tax when you go the route of leasing. Lastly, your monthly payments tend to be much lower than they would if you were to purchase the same vehicle.
Leasing can also be a viable option for those who like the idea of driving a new car every few years or for business owners who can see tax breaks if they use the vehicle for business.
Cons of Leasing a Car
On the flip-side, there are some negatives in leasing as well. To start, when you lease a vehicle you are generally paying for the most expensive years when it comes to value. How much you’ll pay for the lease is determined by subtracting the residual value, an asset’s value at the end of its lease, from the purchase price. You’ll also always have a car payment, and will never actually own the car.
You also have to be aware of the mile limitations when it comes to leasing a vehicle, which generally range 12,000 to 15,000 miles per year, and typically carry penalties of about 15 cents for every mile you drive over the limit. Some dealerships may even tack on fees for excessive wear and tear on the vehicle.
At the end of the day, the only one who truly knows which option is better is you. Knowing your financial situation and creating a budget for yourself are essential when it comes time to getting a new vehicle, however having a keen understanding on the differences between buying and leasing will allow you to make the best decision possible.
5 Hidden Risks in Retirement That Could Affect Your Financial Security
Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel due to many inherent post-retirement risks. Understanding those risks that lie ahead and how they can harm financial security is key to making critical adjustments in a retirement plan. Sometimes without those changes, the impact of unfavorable and unpredictable events can be far more severe.
“Once you have a retirement plan in place, it’s not set in stone,” says Clayton Alexander (www.retireteton.com), an investment adviser and founder of Teton Wealth Group. “
Alexander says retirees and those making retirement plans should be aware of these five risks:
Running outof money before they die is one of the primary concerns of most retirees. This worry is heightened by the fact that the average life expectancy has increased. “A pension or an annuity can lessen the risk, but carefully investigate anycompany where you’d place an annuity and be cautious of fees and interestrates,” Alexander says. “It’s best to tailor your plan to run to life expectancy plus five years.”
- Loss of income. “Make sure both you and your spouse are protected from the unexpected,” Alexander says. “Consider the financial impact of the loss of one spouse. Remember that your surviving spouse will only get the highest of your two Social Security checks. A spouse’s death can bring additional financial burdens, including lingering medical bills and debts. Life insurance and estate planning are important vehicles to protect survivors.”
- Health care costs. Longer life expectancy could lead to high costs in a long-term care facility. “It’s estimated that approximately 50% of people over 65 will need long-term care,” Alexander says. “Do not overspend on policies that may be subject to drastic premium increases. And surprising to some, Medicare is not free — your premiums for coverage are usually deducted from your Social Security check. Medicare doesn’t cover dental, hearing or vision, is subject to deductibles, and doesn’t cover long-term care. Long-term care insurance is advisable.”
- Negative return risk. “A 50% gain does not allow a portfolio to recover from a 50% loss,” Alexander says. “In fact, a 100% gain is required to restore a 50% loss. The ‘buy and hold’ strategy that works when you are young — where
you waitfor the markets to come back up after a downturn — does not apply inretirement as we saw in 2008,when many people’s retirements were wipedout. Common stocks have substantially out-performed other investments over time and thus are usually recommended for retirees as part of a balanced asset allocation strategy, but the rate of return you earn can be significantly lower than the long-term trends.”
- Inflation risk. “
You shouldplan on prices for food, goods andservices getting higher duringretirement, reducing your buying power incrementally as you are livingon a fixed income,” Alexander says. “Your retirement plan has to factorthat in. Ways retirees can curb the effects of inflation include annuity products with a cost-of-living adjustment feature and investing in equities, a home, and other assets.”
“Understanding what the potential post-retirement risks are and considering them in the retirement planning stage,” Alexander says, “can help to ensure that they are mitigated and properly managed.”
Are Americans Undervaluing Paid Time off + Quick Trip Tips
It’s August, which for many Europeans means taking almost the entire month off. So why is it difficult for Americans to take even the little vacation time they receive? A recent piece in The Economist states workers in the U.S. are doing it all wrong by going on short holidays, which can add even more stress or taking none. Instead, it’s essential for employees to recharge their batteries. It’s also beneficial for companies to have a consistent holiday month during which junior employees can head to the beach, and managers can take stock of things, says the report.
While many Americans may not receive paid time off, especially those that only work part-time, even those who receive it generally don’t take all of it. What we don’t realize is that not taking a vacation is like giving money back to your employer, especially with companies that have a use it or lose it policy. Which should encourage employees to use their time but unfortunately it does not. According to recent polls conducted by Bankrate, nearly 2600 US adults say they plan to take a quarter of their vacation days while 4% are not planning to take any vacation time at all.
Time off is a valuable perk, to the tune of millions of dollars! Just to bring the point home in 2017 Americans gave up 212 million days off that amounts to $62.2 billion in lost benefits! So, take your vacations and follow the tips below to not break the bank while taking time off:
- Take a Staycation – Stay local and vacation somewhere that is less than a day drive away, this helps save gas, mileage, and spending on lodging. Look for local attractions, vineyards, interesting museums and landmarks or even travel to your closest big city and be a tourist for a day. You would be amazed at how much you can discover and learn by staying local and all on the cheap! It’s a bonus if you have friends in the town your visiting they can serve as a tour guide and let you stay over for free if they have the room.
- Book Flights Off-Season – July 4th, Memorial Day and Labor Day seem like a great time to go on vacation; unfortunately, everyone is planning to take time off during those busy weekends, and ticket prices are through the roof because of it. Book flights after major holidays and during the week you will generally find that they are cheaper than weekend flights.
- Take a Road Trip – Road trips are fun and cheaper than taking a plane, especially if you must rent a car when you get to your destination anyway. Plan cool stops along the way and finds interesting places to eat that way you can make the journey part of the vacation.
- Plan to Eat In – Food adds up on vacation so pack food and making one or two meals in your hotel can keep you under budget.
Top Ten Freshman Money Myths
Starting college is one of the most important and exciting times of your life. Now that you’re all “checked-in,” enjoy your college experience without worrying about where your next meal will come from by chasing away these common freshman money myths. (more…)