Can I lease a couple of nice cars?

[TexasHusker]

I know this sounds really trivial, but I am self employed and make a very good living. I know that leasing a car (especially an expensive one) is financially stupid, but if I can afford it so what? Here is my financial situation:

Own 1 business that nets to me around $200K a year.

Own another business that nets to me about $80K a year.

Own rental property that nets to me another $20K per year.


I don't have much of an IRA because we used it to fund one of our businesses. But...our businesses ARE our retirement - I retired from the workforce at 46 years old. OUR BUSINESSES WERE AND ARE OUR PRIMARY INVESTMENTS.

Our only debt is real estate - our principal residence we owe about $300K on, and two of our rentals we owe a combined $300K on, but we have at least 40 percent equity.

Our income is about $28K per month, and our expenses, including $2000 savings, $3000 church tithe, and allowing $1800 per month for a couple of nice cars. The expenses total $23,400, which leaves us with a positive cash flow of about $4,700 per month.

Am I completely out of line to splurge on a couple of nice cars that I can trade in every 2-3 years? Am thinking of a Range Rover and Tesla. I realize cars are a HORRIBLE investment, but I have always LOVED cars and now I feel like I can afford a couple.

Do I make enough? Thank you so much for your feedback.


A little more info: We have two kids - one 16 and one 13. So college is coming up. 2 more years.

[97guns]

not saying you should but i would only be thinking 1 car and not 2, i would look for a car a year or 2 old with less than 20k on the odometer and finance it at 2.9% with my stellar credit. you should be able to write off the interest on the loan with your business and i hope youve been taking your mileage deductions, its free money..

.... and just because your finding yourself $4700 ahead of the game every month doesnt mean you need to blow it, the more responsible thing to do is save it and make do with vehicles you have now, again not saying you should but i would

[FLA]

are your businesses set up to run without you or your wife if something happened to one of you? I'd still be saving for retirement unless the businesses are foolproof.

[TexasHusker]

not saying you should but i would only be thinking 1 car and not 2, i would look for a car a year or 2 old with less than 20k on the odometer and finance it at 2.9% with my stellar credit. you should be able to write off the interest on the loan with your business and i hope youve been taking your mileage deductions, its free money..

.... and just because your finding yourself $4700 ahead of the game every month doesnt mean you need to blow it, the more responsible thing to do is save it and make do with vehicles you have now, again not saying you should but i would

I don't plan on blowing the other $4700 per month - that's what is left AFTER $2K per month saving, and a projected $1800 per month in car payments. Realistically we need to save another $2K or so per month for college.

[TexasHusker]

are your businesses set up to run without you or your wife if something happened to one of you? I'd still be saving for retirement unless the businesses are foolproof.

No business is fool proof, and no IRA is foolproof - both of our businesses are passive income - we work them about 2-3 hours per week on average.

[Singuy]

Couple of questions

Can you please let us know what your expenses are in detail? 23k in expenses(or 21k minus the two cars) seems quite a bit. Are you paying for your children's private school? Is there a college fund in place? Are you expecting to give your kids a full ride at a private name brand university or is this going to be a state college type deal?

What is your current net worth(approx.)?

Generally we don't recommend leasing two cars that are worth about 80k per car. The cost is 65k after 3 years and you literally ends up with thin air at the end of that. On the flip side, you are spending your "interest" and not the principle so technically you can do whatever you want with that money..including leasing two cars.

[TexasHusker]

The expenses are made up primarily of three mortgage payments ($5200 per month, with $2100 of that being debt service on about $750K worth of rental property. We tithe at $3K per month, save $2K per month, income taxes are $6K per month, and soon you have $23-24K per month.

We spend about $1000 per month on kids sports (both are in advanced junior athletic activities).

I would guess our net worth to be $1.6-7.

We aren't super frugal - we eat out a lot, etc.

We aren't savers in the traditional sense of the word which is why I bought s bunch of real estate - the debt service forced us to "save", yet we enjoy significant net income off of those properties. I actually understated our "net after all expenses" figure from those - after debt service, repairs, maint, utilities, taxes, and insurance, there's about $4K a month in our pocket.

[Singuy]

The expenses are made up primarily of three mortgage payments ($5200 per month, with $2100 of that being debt service on about $750K worth of rental property. We tithe at $3K per month, save $2K per month, income taxes are $6K per month, and soon you have $23-24K per month.

We spend about $1000 per month on kids sports (both are in advanced junior athletic activities).

I would guess our net worth to be $1.6-7.

We aren't super frugal - we eat out a lot, etc.

We aren't savers in the traditional sense of the word which is why I bought s bunch of real estate - the debt service forced us to "save", yet we enjoy significant net income off of those properties. I actually understated our "net after all expenses" figure from those - after debt service, repairs, maint, utilities, taxes, and insurance, there's about $4K a month in our pocket.

So are you planning on paying your kids through college?

State university will cost around 3k/month(tuition/room/board)
Name brand private universities will cost about 7k/month per student.
Of course these are numbers based on paying everything at sticker price.


If you were planning on paying them through college but that fund is not set up, perhaps that can be something you can look into.

Your income is pretty high but you don't seem to have a lot of liquidity which soon will be required for your first hs graduate. If you subtract income taxes/property taxes, hoa fees, home insurance, and interests..would you say you are left with about 15-17k? This is your true income per month. Sounds like your lifestyle plus equity payments on your mortgages eat up another 10k.


I don't think this income justifies 160k worth of cars sitting in your driveway considering your kids will become really expensive really fast.

I would dump the car money into a college fund or into your property debt..get rid of them and then you can reward yourself with some fancy cars

[dczech09]

Leasing a car is the most expensive way to own an automobile. It does not matter if you are broke or doing well - this is the mathematical reality. I would not recommend that you borrow for cars, so I cannot in good faith recommend this leasing idea.

If you want to own a couple of nice cars, then great. But save up and buy them. These cars are a luxury, and it is not smart to finance luxuries.

You have admitted that you know that leasing cars is a financially dumb move. So why would you do it? Deep down, you know the answer to your question. You just need someone to talk you down

[corn18]

No business is fool proof, and no IRA is foolproof - both of our businesses are passive income - we work them about 2-3 hours per week on average.

While neither are foolproof, both carry different levels of risk.

I think what many of us are struggling with is your non-traditional approach to retirement. Without any savings, you must cash flow all of your expenses. For the rest of your life. Personally, I would be ok with that if I had a nice cushion of cash to sustain me through any issues 9emergency fund). If I were you, I would want at least $400k in liquid money set aside as an EF. Then, and only then, would I consider leasing (aka wasting) that much money on cars.

It sounds like you've already made up your mind to lease the cars and are looking for affirmation.

Tom

[Singuy]

Leasing a car is the most expensive way to own an automobile. It does not matter if you are broke or doing well - this is the mathematical reality. I would not recommend that you borrow for cars, so I cannot in good faith recommend this leasing idea.

If you want to own a couple of nice cars, then great. But save up and buy them. These cars are a luxury, and it is not smart to finance luxuries.

You have admitted that you know that leasing cars is a financially dumb move. So why would you do it? Deep down, you know the answer to your question. You just need someone to talk you down

Some cars are just meant to be leased. Cars that are valued at 80k+ are such cars. They have the most perceived value when they are new(or newest model) and running these cars outside of warranty is a nightmare(due to their fancy clutches that break every 20k miles). You buy these cars to show that you made it so you can't drive around in an old model.

Yes they are absolutely terrible buys, but you buy them for the fun of it. You can pretend that monthly leasing fee has the same value as your monthly payment to a fancy country club.

I agree with Tom..have 400k worth of liquidity at least and then you can start throwing money at fancy cars.

[TexasHusker]

While neither are foolproof, both carry different levels of risk.

I think what many of us are struggling with is your non-traditional approach to retirement. Without any savings, you must cash flow all of your expenses. For the rest of your life. Personally, I would be ok with that if I had a nice cushion of cash to sustain me through any issues 9emergency fund). If I were you, I would want at least $400k in liquid money set aside as an EF. Then, and only then, would I consider leasing (aka wasting) that much money on cars.

It sounds like you've already made up your mind to lease the cars and are looking for affirmation.

Tom

You might be right.

I tried the traditional approach to retirement savings - stuffing everything I had into a 401K for 20 years - and realized my returns on it were pretty dismal. I decided if I was ever going to really achieve my financial dreams, it wouldn't be by watching CNBC. It would have to be on my own, and in my own way. The mutual fund managers don't care about my life - they just want to beat the averages by a little bit.

I liquidated my company 401K of every penny - over $400K - paid the taxes and bought two nice rentals for $300K that produce a very nice income.

I also spent about $250K from another savings acct on a business franchise that
is now throwing off about $185K a year.

So yes I have had much more success with the non-traditional approach to wealth accumulation and retirement. That would be putting it mildly. It's worked so well that I am - for all intents - retired right now.

I doubt that I'm going to use the proceeds from my non traditional approach to go back and try the traditional approach, which for me was just a waste of time.

[feh]

I know this sounds really trivial, but I am self employed and make a very good living. I know that leasing a car (especially an expensive one) is financially stupid, but if I can afford it so what?

Because wasting money is stupid (your own words).

It doesn't matter if you can "afford" it. It's a waste of money; why not use that money effectively?

[TexasHusker]

Because wasting money is stupid (your own words).

It doesn't matter if you can "afford" it. It's a waste of money; why not use that money effectively?

Good point. Question ...what expenses are a waste of money ? If I buy Kraft Mac & Cheese instead of the generic, is that a waste of money? If I want to fly first class to have more legroom on a 3 hour flight, is that a waste of money?

[feh]

Good point. Question ...what expenses are a waste of money ? If I buy Kraft Mac & Cheese instead of the generic, is that a waste of money? If I want to fly first class to have more legroom on a 3 hour flight, is that a waste of money?

Everybody has their own dividing line on these matters. Personally, I don't worry about 20 cents. I do worry about hundreds or thousands of dollars.

Leasing cars falls into the latter category.