Car Leasing as an Investment Strategy
The best car lease investment is the one that preserves your cash flow.
I recently wrote a Mortgage Column showing how we can use our Home Loan savings to help us reach our yearly IRA Contribution Limits. Lower interest rates mean monthly savings. Those monthly savings can be re-invested in our 401K or Retirement Investments. The reason I bring this is up is because the same principle applies to Monthly Car Leasing. It really doesn’t matter if we buy or lease cars; there is always a monthly payment involved in some form or another. For those who think paying cash for a car is saving them a monthly payment or bill, I ask, “How many months will it take to recoup the lost cash you sunk into your depreciating car?” When we buy used cars, we are forever faced with monthly maintenance costs and eventually having to replace it some day. Buying new cars on loan means we will eventually pay them off, but no car runs forever. There will always be a time when we need to replace our old cars. I prefer to lease cars, because it gives me greater control over my monthly cash flow, allowing me to invest the immediate savings elsewhere. Just as Lower Mortgage Rates allow us to put a little extra away towards are 401K and IRA Contributions, a monthly car leasing strategy can work the same way.
Lease Cars and Invest the Rest
The best car lease deal is the one that gives you the most car for your money at a monthly payment which is substantially lower than if you purchased it on loan. Using our October Monthly Car Lease Specials as an example: Let’s say I wanted to lease the 2011 Honda Accord LX with the advertised Lease Specialof $250.00 per month. Purchasing the car on a 60 month loan with a very low 3.9% interest would yield me a monthly payment of $404.00. That’s $154.00 a month extra to put towards my 401K Contribution or my $4,000 IRA Contribution Limit. While it’s true the car will be paid off after 5 years, there will be maintenance costs in the form of new tires, brakes, and other miscellaneous costs; not to mention, the 5 years of lost interest towards an investment account. While there is no guarantee on the rate of return on an investment, there is also no guarantee how long I can drive an old car and at what cost. Now, let’s say I plunk down $22,000 Cash for the Honda Accord LX. $22,000 is over 8 Years worth of $250 payments. When you figure in the cost of borrowing, inflation and depreciation of the car, I’ve saved nothing in the long term. I would rather make the low, monthly lease payments and know exactly where my money is going each and every month. I
The Beauty of Car Leasing
Leasing cars often gets an unfair rap as being a risky financial decision filled with uncertainties and hidden costs. The truth is exactly the opposite. When I lease cars, my financial certainty is much greater through a number of guarantees:
- A Fixed Monthly Payment
- A low Monthly Payment
- 0 Maintenance and Repair Costs
- A reliable, new car that won’t break down
The beauty of car leasing is the financial security and enjoyment of driving a new car from month to month.