Let Common Sense Steer You Through Auto Buy-Lease Debate
Q: Leasing a car makes more sense than a lot of finance writers say. Why tie up all that money in a depreciating asset? Leasing allows you to pay just for the value of the car you use up. Am I nuts?
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A: This is one of those questions that prompt people to whip out their Hewlett-Packard HP-12c financial calculators and crunch a few hundred numbers to prove their point, whether it’s yes, you should lease, or no, you shouldn’t lease, or hey, maybe you should just ride the Metro.
It seems like you can come up with numbers to make almost any scenario make sense.
The pro-leasing folks point out, as you have, that your “investment” in a car isn’t returning any money to you and is in fact shrinking every year. Take the money you would otherwise spend, either paying cash or on a big down payment, and invest it instead in something that can make you money: stocks, bonds, a Beanie Baby collection.
The anti-leasing people sniff that leasing means you’re throwing money away just for the privilege of driving a new car every two years, and that you’re headed for financial ruin.
Drive a Mercedes now and be forced to ride the bus when you’re 60, they growl. The idea is that leasing is spendthrift, and if you’re spendthrift now, you’ll be forced to thrift in your old age.
You can make either scenario work, depending on your assumptions: the cost of the car, the details of the financing, how long you own the vehicle and returns from other, alternative investments. So, when our trusty calculator can’t give us the definitive answer as to who’s right, then we have to fall back on common sense.
And common sense tells us that the joy of having shiny new wheels, the envy that prompts from our neighbors and the famous new-car smell have to come with a cost. If that were not true, then rusted-out Toyota Corollas would disappear from our freeways. Indeed, whether you initially buy or lease is less important to your bottom line than whether you keep the car a long time.
Maybe we’re willing to pay the cost of driving a new car, especially if our financial life is on track, we’re saving enough for our goals and it’s really, really, really important to dazzle the Smiths next door. Or maybe we’re not.
I suspect the truly smart folks are the people who buy your used, 2-year-old leased vehicle after you turn it in. You’ve paid for all the new-car depreciation, and the surfeit of used cars provided by others like you keeps resale prices low.
Eight or 10 years later, these crafty folk turn up again, having driven your car into the ground, and buy the next one. You’ll recognize them in 20 or 30 years--they will be the ones cruising by, in that (used) Mercedes, with big old grins on their faces.
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Q: I just discovered my spouse has a secret credit card account with a $2,000 balance on it. I feel devastated and betrayed. We had agreed to cut back our spending and save more for a house and for retirement. What should I do?
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A: Few couples agree on every detail of how money will be spent and saved. But a secret account, whether it’s a debt or a hidden stash of cash, may signal big problems for your relationship, not to mention your financial plans.
It’s possible that you could be going overboard in your zeal to save and not allowing your spouse enough freedom to spend on life’s little niceties. Many people find that having at least some money of their own to spend, no questions asked, helps ease negotiation of the bigger financial issues.
People who have been divorced often feel more comfortable keeping some of their finances separate, although typically they want to squirrel away assets and share debts, not the other way around.
It’s also possible that your spouse has a serious spending problem. Hidden accounts can be like hidden bottles of booze to an alcoholic; if your spouse felt truly justified in what he was doing, he wouldn’t have to hide it from you.
What you need to do is sit down with your spouse and start listening, as calmly and as empathetically as you can. Exercises in Olivia Mellan’s book “Overcoming Overspending: A Winning Plan for Spenders and Their Partners” might be useful.
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Liz Pulliam, a personal finance writer for The Times, will answer questions submitted by--or inspired by--readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
