Should I lease or buy a car? There are good reasons for both methods. But in this episode, Dawn talks about the experience of Jones-itis that lead to a dumb financial decision.
Welcome to the SimpleMoney Podcast, where we make personal finance less intimidating. I’m Dawn Starks, a financial planner and lover of the simple life. I’m here to talk about money and simplicity. Let’s dive in. This is Episode 107: Leasing a Car: One of the Dumbest Financial Moves I’ve Ever Made. Today I’m going to tell you a story about lifestyle creep. So if you’ve been paying attention to the blog or the podcast, then you know that I’ve been talking about lifestyle creep a lot. Lifestyle creep is when your lifestyle, or what you spend your money on, increases along with your increasing income.
So what happens over time is people get raises in their jobs, or they start making more money, or they change jobs and make more salary. And as they make more and more money over time, they spend more and more money over time. And so in doing that, then you can’t really ever get ahead because you’re always spending what you’re making. So lifestyle creep is really insidious. It can kind of creep up. There’s, you know, therefore the name “lifestyle creep”, but it can creep up on you and you don’t really even notice it.
So you have to be aware that it exists so that when you do have some sort of increase in your income, whether it’s through a raise or a bonus or a different job or whatever, that you don’t succumb and automatically upgrade your lifestyle. And partly you can just do that by planning ahead. And when you know you’re going to get this raise or you get the surprise bonus, you tell yourself immediately, or you already have a plan for what that money, that extra money, will go for instead of increasing your lifestyle.
So a few years ago, I – and really, my husband and I – fell victim to the lifestyle creep scenario. And so you have probably heard of “keeping up with the Joneses”. And so I referred to it in my blog post as “Jonesitis”. So we had a bout of Jonesitis a few years ago. I’m sure if you haven’t had it yourself, you’ve probably known somebody who has had this ailment at one time or another. And so the symptoms of this ailment are where you feel inadequate around your friends or neighbors because they have things that you don’t.
And so you feel like you need, that you’re inadequate and that you want to have those things too, so that you can be like them. So that you can fit in, so that you don’t feel like you are less or inadequate in some way. So having Jonesitis, or trying to keep up with the Joneses, is really just a feeling of wanting more than you have currently, really for no other reason than other people have it. And so other people have it, you want it too. Lots of people struggle with this predicament.
So I’m sure that, as I said, you’ve had it at least once in your life. I’m sure you’ve known people, but I’ve got a story to tell you about that. And at the end of this, I’ll talk a little bit about actually my thoughts about leasing versus buying a car, because this article is really, or this episode today based on the article I wrote, is really about lifestyle creep, but it’s also about leasing a car. So the story begins on the front porch of a fancy mountain resort in the Appalachian Mountains.
Greg and I were there with a few dozen of the top financial advisers in the firm I’m affiliated with. And the premise of our being there was a series of meetings where we were with these other advisors, we were there to share ideas about financial practices, and also just spending time together, getting to know each other and, you know, having a little bit of fun. And so pretty much for us, that means talking shop all the time because that’s what financial advisors do, it’s enjoyable, and so we talk about our practices, and about managing money, and about how to do things better all the time,
just because that’s actually fun for us. So it was just a long weekend, and it was really rewarding for us, it was relaxing, and it was invigorating due to the ideas I was getting and, you know, talking with these people and sharing ideas and best practices. But it was also relaxing time. We had time to spend together, Greg and me, and do, you know, some fun things also. So at the end of the meetings, we were on the front porch of this resort waiting for the valets –
as I said it was a fancy resort – to bring around the cars. And so there were several of us there,
and so these were just, this was just regional people. So most everyone had driven to this resort.
So everybody was waiting for their car. And we were all just talking about the weekend, about the ideas we had, talking about
things we had to follow up on, and just waiting. And here, car after car pulls up as the valets bring them in,
and then the people get in the cars. So maybe what I should say is luxury car after luxury car pulled up
into the little portico there. And these were really nice cars, I mean expensive cars, and they were shiny, and they were clean, and beautiful,
just beautiful cars were pulling up. And then our car pulled up. And so our car was an older,
small-sized, moderately-priced – but it was fully paid for, we didn’t owe any money on it –
and it was dirty. Our little SUV, our little Mazda SUV, which I adored. I adored that car.
But in the series of cars as they pulled up, our car was clearly the one that did not fit in with the others.
And so, in seeing our car being pulled up in the midst of all these really fancy cars, I turned to look at Greg with a big grin on my face because I was like,
“Ha, look at this!” And I – because I was excited about it, because to me, I’m thrifty and I tend to be frugal about things –
and so I was feeling proud of myself, and of us, that we had let our thrift shine over, you know,
wanting to have a status vehicle. But he had horror on his face, at how embarrassing it was that we have this crummy car compared to all these really fancy cars.
So, I should back up a step here and say that when it comes to vehicles, Greg is very interested in cars,
and I’m not. He’s the one that takes care of our cars. He’s the one that is more eager to upgrade every few years because of newer technologies,
newer safety features. And he just enjoys new toys. I don’t, I worry endlessly about things,
and if I have something new like a car, then I worry about it. I worry that it’s going to get dinged and worry that it’s going to get wrecked or whatever.
I just, I much prefer to have something that’s a little bit old and worn out, because then I worry less about it.
It’s not that I don’t care, but I just don’t like to be stressed out worrying about something. So for me,
cars need to be reliable and they need to be safe. But they just really need to get me from point A to point B.
They don’t have to be gorgeous. They don’t have to be fancy or luxurious. And I certainly never fancied myself as somebody who would buy a car simply to, buy a fancier car simply because I wanted to sort of show status.
Nevertheless, after that fateful day on the porch of the luxury resort, we – and we just, it was so obvious that we did not fit in to that bunch of people –
we started talking about replacing the car. And so I had already expressed some interest prior to even that weekend at that resort,
I had expressed some interest in having a little bit larger car. Because I had rented one for a work-related trip so that I could carry several members of my team to,
you know, a nearby city for a conference. And we all just rode together and having the larger car really made that easier and more comfortable than my little car.
So because of that, and because of this experience that we had, where we were horrified – sort of – and not fitting in,
we started talking about upgrading my car. And, you know, we did talk about image, some. We talked about the fact that in all my working years I had never really been interested in portraying myself as, you know,
the stereotype of a financial advisor, somebody who wore expensive clothes, and I drove an expensive car, and had a Rolex watch.
None of those things appealed to me then or now. And really, I’m just the opposite. I took pride in not being that normal financial advisor.
I took pride in being the one that was thrifty and didn’t mind having a secondhand car or wearing clothes until they were threadbare.
I didn’t mind that. To me, it was more like a badge of honor that, you know,
I was careful and good with money. But, when it comes from, I mean, so when I’m thinking about
like the hobbies that I choose, or the vehicles, or the clothes that I wore, those were all things that made me different from the mainstream in the industry.
And those were the things that I felt pride in. And so, being that black sheep, I guess I felt pride in it.
But I always had this little niggling worry. I always wondered how I was being viewed by my peers and my clients.
It didn’t last very long, those little niggling worries, but it was, you know, they were small,
but I would think about it, and consistently, so there was never really a time when I was free from it.
I always had a little bit of worry. It’s like on the one hand, I was super proud of myself for being me.
And on the other hand, I was like, “But what are people saying about me? You know?
What are they thinking about me?” So along with that then, you know, Greg’s argument was that not only is a nicer car more in-keeping with what would be expected for somebody in my position, that I had earned the right to have a nicer car. I’ve worked so hard for so long,
and I deserve to have a nicer car. And so I don’t want you to think for a second that I’m going to make Greg out to be the bad guy here, and that
like, he talked me into this. Because he didn’t have to talk very much for me to go, “Yeah,
yeah, you’re right. You’re right!” I feel those things too. And again, that niggling worry
of what people thought about me sort of rose to the surface during this whole process.
But I worried also that this upgrade, if we did upgrade cars, would that shatter the image that I had built of myself over these years?
So I was really conflicted between being true to myself, and then also rewarding myself. So one thing led to another,
and our conversation led us to the idea of potentially leasing a car. And the rationale was to be able to get more car for the money,
honestly. We weren’t thinking that we would have, you know, get a fancier car and own it for the long haul,
but really, just to get a nicer car for now, and then just see, you know, see how things went.
And so we really wanted to have more car for what we could afford each month. Which is exactly the wrong way to go about buying, or leasing,
however you’re going to get a car. It’s exactly the wrong way to do it. So we were very,
very guilty here. So we decided to lease. And, you know, a lot of business owners do that.
A lot of business owners decided to lease their car and write-off the payments as a business expense. And that wasn’t really our motivation.
I couldn’t really justify leasing the car as a business expense because I don’t drive my car mostly for business, and never have.
So we just have always used the approach of keeping track of mileage and then getting reimbursed by our company for the mileage driven for work instead of writing off the payments.
So no, our decision to lease really boiled down to two reasons. The first one was that we could easily adjust our budget to cover the monthly payment for the car we wanted,
which would have been too expensive if we had bought it. And then the second reason was that our pattern had shifted to owning cars for fewer years,
lately. I tend to always want to own a car for a longer period of time and not change cars out.
As I said earlier, Greg enjoys new technology and always has a mind for safety features, and so he tends to prefer upgrading and changing out cars more frequently.
And so everybody knows that, you know, a new car loses significant value during that first year that you own it.
And so if you’re going to own a car only three years before trading, then you’re really getting killed on the depreciation that you’re experiencing there.
So we thought, “Well, if in three years we would want a different car didn’t it make sense to lease?”
So of course, this is us justifying our decision. And of course that made sense to us.
And so we decided to do that. So now let me go back and be clear here that leasing is not a bad decision for everyone.
There are perfectly legitimate reasons to lease. As I said before, people who do use their vehicle primarily for business and write-off the expense of the lease,
that is very legitimate, if that’s the kind of business that you have. And sometimes people choose to lease a car because they want to avoid expensive repair bills later.
So especially, you know, people who are not very handy with cars. I think women would tend to fall into the category a lot,
even though that’s stereotypical, where they don’t want to have to tinker with a car or worry about a car breaking down.
So they would prefer to have a newer model car and not worry about having to have it in the shop or that it might break down.
And so leasing can make sense for people who are going to keep their car for fewer number of years.
And so, if you’re going to lease a car, then the best way to do it is to do your evaluation from a goal and budget perspective.
If your goal is to run that lease through your business, like I said, if you mostly use the vehicle for your business,
then you want to look at the budget for your business to determine how much is affordable, in terms of a payment.
And if what you want is to minimize those repair bills later in life, and the cost of driving over the course of a year,
then you can find a lease amount that fits your budget with that goal in mind. And if you know you’re going to flip cars every few years,
then you’re going to pick a monthly lease, again the amount that fits. But you have to be sure that you’re factoring in the whole cost of the vehicle.
So when you shop for a car to lease, and you only look at the affordability of the payment,
you’re making a mistake because oftentimes a hefty down payment is required to lease a car. So sometimes you have to put a few thousand dollars down,
and then you have this smaller, more affordable lease payment. So you have to factor in that that’s money that you put into this car, that you’re not going to get back at the tail end when you sell the car back, because you’re not selling the car back.
You’re just turning the car back in when the lease is complete. So you have to factor in the cost of that down payment.
And I think too often people overlook that, and they just view that as just something that’s required as part of the lease,
and so they don’t factor that in and say, “Well, that actually cost more than just the total of the monthly payments.
It also cost the amount that we had to put down up front.” You also have to think about the fact that luxury cars, higher-end cars, tend to require premium gas and specialized maintenance that can be more expensive.
That was certainly our experience, and that was not something we really factored in at all at the beginning, and should have.
And at the end of the least term, you might also be on the hook for repairs and you know,
if you damage the car in some way, if it gets scratched or something happens to the car outside of what the lease agreement decides is normal wear and tear, you will have to be on the hook for that and pay some money out of pocket.
And so the more expensive the car, the higher those repair costs are likely to be. So you have to think about all those factors.
So the mistake is to say, “Well, when I lease a car, all I have to worry about is the monthly payment,
and then when the lease is over, I’m done. And then I can just start a new lease somewhere else.”
You have to remember about that down payment. So money up-front, you have to remember about money that you might owe at the end,
and what that might amount to, based on the kind of car that you’re leasing. And then also,
what about the maintenance during the period of your lease? Are you going to have to use more expensive gas? Are you going to have to pay to have
a special kind of technician work on the car for oil changes and the simple things that you have to do to maintain your car?
All that has to be added together in order to figure out what the cost is going to be during the period of your lease.
And remember that “just because you can afford it, doesn’t mean you should afford it.” And this is really the mistake that we made,
I think. Because leasing only made sense for us, because of the likelihood that we would only keep a car for three years. Beyond that, it was really a dumb decision.
And the reason for that is because, if we were going to just rent a car for three years, which is in essence
what you’re doing with a lease, we could have picked a much cheaper car to do that with. Instead,
we let the “Joneses” creep in, and talk in our ear, and convince us that we “deserved a nicer car” and it was “time for us to have” this,
you know, this fancy car we’d never had before, and probably never will again.
And the fact of the matter was is that we could afford the lease payments just fine. So even though they were more than they could have been,
we could afford it, and I let that really run the decision and I shouldn’t have, because I know better.
And I should have remembered that “just because I can afford it, doesn’t mean I should afford it.” So if we had elected to buy the car, and that would have been a much higher monthly payment,
we could have afforded that payment too. I wouldn’t have been happy about it, but we could have afforded it.
But the fact of the matter is, again, just because we could afford it doesn’t mean we should afford it.
There were way better things we could have done with our money. We could have bought or leased a less expensive car, and then used the remainder for something more useful,
like investing, or paying off debt. So this is the lesson for you that’s worth noting – “just
because you CAN afford something doesn’t mean you SHOULD afford that thing.” So this was clearly so much more car than we needed and the entire time we owned it,
I was conflicted. I would see the car sitting in the parking lot and I would think, “Wow,
that is such a cool car! I can’t believe I have such a cool car!” But in the next,
in the very next thought that would cross my mind. I would be worried that, you know, “So-and-so is going to see me driving this car
and they’re going to judge me for this fancy car that I have, because it doesn’t fit with my personality and they’re going to judge me for that.”
And now that’s really stupid. I shouldn’t have spent three years of my life thinking about those thoughts, but I did.
And so it’s embarrassing now for me to say that, but I did. But I learned a really valuable lesson.
And that is, is that at the end of the day, I really should have been true to myself,
and I should have made the more appropriate financial decision, rather than letting my emotions kind of run wild with me when the time came to make the choice of what kind of a car to get.
So the bottom line for us was that leasing was not the right choice. For me to be happy and true to myself,
I needed to have a modest car, that we could afford with little or no financing, and that didn’t stand out in the crowd. And so unfortunately for Greg,
because he prefers to have cars that are more unique. So my car is, I mean, my preference is to keep a car for several years in order to bring the average cost of owning that car down,
because I feel like cars are super expensive these days. And I tend to want to buy a newer car in order to have a long period of warranty,
but I want to buy a new car and then own it for six or seven or more years in order to bring that average cost down over that time.
So the bottom line for you, is to do your homework. So don’t get sucked in by those low-lease payments,
because that’s the way they advertise it, right? “Oh, you could afford this because it’s so, so low.”
But they don’t really broadcast the fact that you’re going to have to pay money down, and they don’t broadcast, you know, the terms that might cost more money at the end of the lease term,
so you have to be very careful. And don’t purchase or lease a vehicle that’s out of your
affordability range just because you want to keep up with those dumb Joneses! Don’t make the mistake that I did. Because the Joneses, at the end of the day the Joneses don’t care.
You’ll care. You’ll regret it, but the Joneses don’t care. So you think that you’re doing something to keep up with the Joneses,
but at the end of the day, they don’t care, and you’re just going to regret it. So if you’ve had an experience leasing a car, or choosing not to lease a car, and you want to share,
I would love to hear it. I would love to hear any lessons that you’ve experienced with dealing with the Joneses and how you’ve overcome those feelings of wanting to keep up with the Joneses.
You’re welcome to email me at email@example.com. You can also join our Facebook group,
it’s free, the SimpleMoney Community on Facebook, so that you can talk about these sorts of things with like-minded folks.
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