My Money Mistake and How to Avoid it

Well Ram over at the Canadian Capitalist is celebrating his blog’s third birthday and in order to help him celebrate I’m going to take up his challenge to write on my money mistake and how to avoid it.

In my case I feel one of my bigger mistakes was leasing a new car just out of university. You see I thought I’ve got a good job and frankly after all those years of living on the cheap I deserved it. I just didn’t realize I had signed a four year contract to flush money down the drain. In total the car cost me almost $24,000 in payments and the buy out of which it was only worth around $7000 today.

Now I realized the major problem that caused me to get the car in the first place. I had mistaken my parent’s standard of living as my own. I didn’t realize that when you just get out of university you are suppose to be poor and still have nothing. I had a negative net worth of -$25,000 and then I added to it with a car lease. What the hell was I thinking?!?! So in the end I have to put that decision on the wall of shame. I didn’t need a new car. I actually just needed a car. I could have borrowed some money from my parents to make a down payment and then got a bank loan for the rest and got a used car.

Yet shortly after getting the car I realized how much it was eating up of my monthly income. I started to hate that payment and this it turns out was a good thing. Because I hated that payment it made me want to learn more about my own money. In some regards this started me on my path to where I am today.

In the end I won’t recommend leasing a new car to anyone, but it did serve a purpose. It reminds me that regardless of how much I learn there is still more I don’t know about money. So I keep reading and writing hoping if nothing else I can help just one person not make some of the mistakes I have.

11 thoughts on “My Money Mistake and How to Avoid it”

  1. I used to think that leasing a car was a bonehead financial decision.

    But, once I actually got to thinking about it, and crunched the numbers. It’s really not a bad decision. I currenctly own one of my cars and lease the other. What I like about a lease is that you are only paying for the depreciation of the vehicle. Vehicles are money pits, and are the worst investments you can ever make in life. Looking at it that way why not just ‘use’ the car, and have its be the lowest drain on your monthly cash flow that it can be.

    I fail to see the disadvantages of leasing a modest car vs. buying one.

  2. MoneyGardener,

    Lease Vs Buy is all about cost of ownership. Take you monthly payment and multiply it by all the payments you need to make before you can walk away. Now compare that to the cost to buy that same car with low Kms. In many of the cases I looked at, including the car I bought, 4 years of lease payments were about the same as just buying a used version of the same car. After the same amount of time I now own that car instead of having to hand it back.

  3. I agree with MG – there is no difference between buying and leasing in theory, it’s just two different ways to finance the same thing.

    In CD’s case the issue was not buying vs leasing it was getting a car that was too expensive for his situation.

    Good post by the way – I’m spent (wasted?) a few bucks on cars over the years…


  4. Mike,

    You hit it on the head. This issue was getting a new car, not per say the lease itself.

    MJ & James

    As to the lease. It depends on how you view your cars. If you really got it together and paying cash for a car then you are ahead on the entire game (no interest charges). Yet if your paying interest then you have a numbers game to play. Which way is the cheapest depends on the various rates involved and if you plan to keep that car at the end of the lease. If you do intent to keep the car the lease can often be more expensive, but not always.

    Thanks for the comments everyone,

  5. Wow, I’m surprised to hear people advocating leasing. If you were planning to trade in your vehicle every 4 years then the lease option is the better choice for sure, but if you keep the car for 6+ years, buying is definitely superior.

    Cars built today will easily last 10+ years. I just can’t justify leasing knowing that. I’m currently paying ~$60/mth for my car (dropped collison on my policy thanks to that depreciation). Now THAT’S low monthly cash flow!

  6. This is a helpful discussion for me because I am moving back to Canada soon and will need a family car. I tend to agree with those who advocate owning a car as opposed to leasing. It just feels like throwing your money away to lease. But is there another factor to consider here? What about the costs of maintaining the car? Doesn’t the lease cover some maintenance costs? Also, second-hand cars are notorious for needing continuous upkeep and if you happen to buy a lemon, you’re stuck with it. For those who are handy with cars, definitely the buying option is the way to go. But for the mechanically or time challenged could the lease be the better option?
    I’m curious to hear opinions. They’ll definitely factor into my upcoming decision.

  7. Jeff,

    The lease doesn’t cover any maintenance costs (at least in my case). As to buying a lemon you are best off to research a bit before you get here what is a good car. Also check into auto insurance rates. That can dramatically effect the cost of owning your car (as Telly mentioned).


  8. I can’t see leasing is always bad. As has been pointed out, it depends on the interest rates. If one was to compare lease vs buy for an import (say a honda). Year end deal and you get 2% lease for 48 months or 2% finance for 48 months. People need to compare apples to apples. Say you had 20K with which to buy a new car (a honda civic perhaps). Because finance/lease rates are so low, you decide to invest the 20K and withdraw money every month to pay for the loan or lease payments. The 20K investment should cover all the finance payments over 48 months, plus a little extra interest due to having the money in there over the 48months. The 20K investment will also cover all the lease payments and the buyout at the end, but the difference is that your buyout (50% of original purchase price, say 10K buyout) has been invested for the full term. That extra interest will more than cover any difference between leasing and financing and will put leasing further ahead.

    A lot of people have very closed minds when it comes to this, but don’t think about it from a true financial perspective. Think of it as a ‘deposit’, like on beer bottles. Why pay it upfront if you don’t have to?

    Of course, people who just give the car back at the end of a lease or nuts. Especially since most automakers depreciate their cars far more than they should (50% depreciation for a toyota over 4 years?? gimme a break!)

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