Threxx

95 hours a week??? That's 13.5 hours per day 7 days a week... not a single day off.

Wouldn't you rather just drive a practical car like a used civic and not spend 70% of every waking hour dealing with your job? You'd probably only have to work 40 hours a week.

RON430

Technically and really, you don't own the car. And you are quite correct, people who finance a car don't own it either, not until it is paid off. So being a leasee saying you "own" the car isn't justified because people who have financed a car and drive it until they pay the owner, the bank, off also say they "own" the car. They are just both not stating the situation factually. Fiscally responsible? That is situation dependent.

Fundamentally a lease lets you pay for the amount of the car you use so you can rationalize it as being fiscally responsible. Especially with a depreciating asset. And cars are depreciating assets that are awful decisions to make fiscally, responsible or not. But if you own the car, as in have the title, then on your balance sheet, it is an asset at it's current value. A lease is only a liability. You are legally commited to the payments with no offsetting asset entry. If that is fiscally responsible to you, then I am happy for you.

I am not sure where the link and quote came from about the Lexus input on the typical family income of the LX buyer but I suspect they know what they are talking about. They do track things like that. But the auto makers rarely, if ever, look at family income vs those who pay cash, finance, or lease. As far as Lexus is concerned, the car is sold. Whether the title is held by an individual, bank, or leasing company, it isn't Lexus' vehicle anymore. Not sure where this goes from here but as far as those who vote in the poll, I suspect they have some sort of ongoing payment, so they are either financed or leasing. If you own the vehicle outright, your monthly and annual costs are pretty low. Even with gas prices where they are.

But I really think we are probably arguing fine points. I am not sure either one of us are the average lessor. If you talk to car salesman, whether the vehicle is bought or leased, often the only thing that is important, after getting the blood lust up for the car, is the amount of the monthly payment. That is a slightly different fiscal situation than we are in. And as for leasing, the more expensive the car, the more argument I can make for leasing. BMW in particular lives in a fantasy world about what the recap value of their cars are and the lease payments are artificially low IMO. But you might as well take advantage of it and just give them the keys at the end of the lease. Of course, it may go without saying that I HATE BUYING CARS. I hate the whole process. So the lease is somewhat attractive, I have leased. But it doesn't do the poll much good as it is probably intended to give someone a rule of thumb to use when they are about to do something fiscally irresponsible. And I hope he gets what he wants out of it.

Threxx

I think differently.

Our 4Runner was bought with cash.

I still consider the depreciation a monthly cost on our 4runner and I also take into consideration the alternative potential with the cash I have tied up in the equity in our 4runner. Both of those are very real costs.

If I keep the 4runner one more month and it depreciates 200 dollars in the process, and is worth 20k dollar and in that same month that 20k dollars could have earned me $130 in my investments then I take both of those costs into consideration as monthly costs, even though I paid for them up front. If I still have this 4runner 5 more years from now with 100k miles on it it will be worth considerably less and my depreciation costs will be much lower on a month by month basis, and my opportunity cost for the small bit of remaining equity in the vehicle will be much lower as well.


And again on the subject of my BMW... I knew ahead of time I only wanted that car for 2 years. I'll most likely be leaving this lease 3-4 thousand dollars richer than I would be if I bought it and sold it 2 years later, and in addition I have absolutely no worries or concerns over what an economic crash might do to the resale value of my car. It's all guaranteed to me. I say if I end up with more money, then I made the right choice.

Of course I understand the even better choice would probably be to buy it and keep it for 10 years... but that's where you get into the whole idea that cars aren't meant to be investments so you buy what you want and buy it in the manner that has the least total cost possible.

Rock-a-Lex

iTrader: (4)

IMHO it does not make much financial sense to buy ANY car outright (if you have good credit)! Time, value of money (TVM) will teach you a dollar today is worth more than a dollar tomorrow; obviously. Also, if you use your credit (via a loan/financing) to your advantage you will come out on top. For example, let's say that you are financing your car @ 5.99%, I should hope that you can make more than 5.99% in your portfolio of investments AND you have all the money (that you would have used to pay the car outright with) to invest or for instant emergencies at home!

Let's just say you had your last $40K
Person A.....spent the entire amount a bought a new car; no payments.
Person B.....spent $3K and is left with a $700/mo car payment for the next 60mos.

Month 1.....person A has nothing to invest
.....person B has approx. $36,300 to invest

Month 2.....person A has nothing to invest
.....person B has approx. $35,600 to invest

and so on and so on...by the end of the 5 year term I'm sure that person B (through investments) has made a lot more than what was incurred (interest from the loan). Person A can just say "I never had to make a check out." Big deal, that's just being lazy.

Threxx

I agree with your basic concept but one element that is frequently left out of TVM and opportunity cost calculations is income tax. You have to pay income tax on your gains. So if you get a 6% rate on your care and pay an average of 20% federal income tax then you have to make an 8% gain on investments to break even with your loan interest payments. And of course there's a risk that your investments will lose money like they probably would have if you put any money in the market in the last year.

On something like a primary residence it's easier to figure for since interest can be used as a deduction on your income tax.

Rock-a-Lex

iTrader: (4)

...good point Threxx and I too thought of the income tax scenario (on capital gains) as well. However, in many books I have read "If" and that's a BIG "if" you have a "properly" balanced portfolio you will come out on top over that 5 year (financing of the vehicle) period. Eventhough every investor knows that past performance does not dictate future yields it does show cyclical patterns with the market. It is said that "in general" the U.S. stock market has shown a 10 - 12% gains on average per year over the last 20 years! That also means that some years it may have yield 5% and others it may have yield 15%; just an example.

litesoarer

Who still pays $7.35/hr?

Threxx

His profile says he's a 31 year old physical therapist so that doesn't sound right.

inxexisten

Most people who pay for their cars in whole have a bunch of $ already invested/saved... and who spends all their money on their car is plain out financially ignorant and overall most people do not pay for their cars in whole, yet most people are also in debt...people in America and saving/investing do not go hand and hand... they want to spend... i think its best that the average just pay it off, most likely they would end up spending it on unnecessarily "junk"...

PushinLEX

iTrader: (9)

No car note here.

Threxx

I agree that most people are just not fiscally responsible enough to take the money they saved by financing a car and invest it. But then again maybe those that are actually going out of their way enough to calculate the pros and cons of financing vs paying cash and their potential gains from investments are those that are actually responsible enough.

I for example intended to pay extra on my house payment every month but instead have decided to just have T Rowe Price auto-deduct that same amount from my checking every month. When that account = enough to pay off my house in one lump sum, I'll go ahead and write the check... but the key is that the money is pulled out automatically so I don't even have a chance to be tempted to spend it.

triplecore

Parents bought me the car outright Bank Check it was Certified Pre Owned RX330 with tade in cost us $20000. They gave $10000 for my trade in a ES300. Don't know what percent my parents make or there income. I am in college so my income is in negatives. Weekend call to mom and dad . about to do it know lol

19psi

hmmm.... barely anything compared to my income. however, after a couple years, i'll have spent at least what i spent on the car itself in mods.

2010mRXsh

I kind of said this before, but I think the better question to ask is:

What percentage of total income per year, per person, is the ideal to spend on transportation costs (car only, no private jet or public transportation, or gas since that varies widely but including parking, and insurance since those are potentially high costs).

This way it eliminates a lot of variables that can really mess up the answers.

Those who buy a car outright can divide the cost of the car (purchase price minus expected trade in) by the number of years they'll own it. Etc. etc.

20%? 30% 50%?

I'd like to ask this as a separate thread but...this one is already here. I didn't create this thread but anyway. I think it's a better way to look at it.

Perhaps someday I'll ask out there. But, I think I got my answer somewhere in this thread, and the answer is...half a year's income, keep it for 5 years.

Rock-a-Lex

iTrader: (4)

To answer your question (Bolded) my monthly payment (financing) is around 6-7% of my gross monthly income. If you are a crazy car enthusiast I wouldn't go any higher than 20% because you still need $$$ left over for the mortgage, house expenses, credit cards, food, clothes, saving etc etc...IMHO.