Seeing that it is Friday and at the end of a hard week anyone is allowed to get a bit more personal, particularly on their own blog, I decided to share with you our current dilemma and ask for your opinion. So, this is the story so far.
I know that leasing cars goes against one of the key dogmas of personal finance; however, this is not going to be the first, or the last, time when I have gone against dogma – in money, life, politics, philosophy and…well you name it. ‘Go against the established dogma’ can be my middle name. And where cars are concerned, John and I have been firmly with Tim Ferriss even before Tim put fingers to key board – we have rented/leased our cars for close to twenty years now (well, with brief spells of ownership).
Long term readers of this blog know that we have made financial mistakes in our lives; sometime fairly big ones, I mean like £100,000 ($160,000) big ones. Renting/leasing our cars has always been a decisions rather than a ‘happening’. Why did we do that?
There are three main reasons for that:
1) The initial investment, whilst still necessary, is not large – usually the equivalent of three to four monthly payments;
2) Driving a brand new car is not a matter of ‘showing off’ and ‘keeping up with the Joneses’. It is a matter of saving on service, repairs and maintenance, and MOT (for the benefit of my readers in the US, this is the technical check that cars that are over three years old have to pass every year to ensure they are roadworthy). And the hassle and bother that goes with all these things.
3) Usually there are really good deals (well, for certain customers at certain times of the year) and one can lease a really good car for much less than it will cost to buy (and repay the loan that usually goes with that).
The financial arrangement that we use is known as ‘personal contract plan’ and the agreement is usually for three years and certain number of miles per year; at the end of the three years the company offers the opportunity to buy the car.
And here is where our current dilemma begins. This time, we decided that we will buy the car for which we had a ‘personal contract plan’. It is a Mercedes A Class and if you don’t know what this is, you can see the picture.
We decided to buy the car because:
1) It has been good to us for the last three years;
2) It is very low mileage (about 13,000 miles); and
3) We have been thinking that owning the car will mean no monthly payment and this is in agreement with the ‘sell liabilities, buy assets’ rule we have been implementing.
We did! Three weeks ago the car became officially ours; we bought it for £6, 700 ($10,800) which adding what we have paid as monthly payments works out 5% cheaper than the price tag for this make. We had the cash – so we didn’t have to borrow to buy it.
So, what is the problem, you may think? Are you moaning because you just bought a car and didn’t even have to borrow the money? This is an example of good personal finance management.
Because of three reasons:
1) We can sell the car for about £8, 500 ($13,700) which is a good profit;
2) It is a good car (John’s measure is that he can get a washing machine in the back though he is not carting those around every day of the week) but it is rather thirsty – it does 40 miles to the gallon long distance and only if you have exceptionally light foot (which I don’t). In town – the main use of the car – it has never done more than 30 miles to the gallon.
3) What we can get if we sell our car it is slightly less than we need to become debt free (apart from mortgage) – and do it in exactly three years.
Apart from that, John just found this baby:
It is small, economical and nifty: the perfect city car. This little baby, does 70 miles to the gallon, has absolutely star reviews and will cost us about £120 per month to rent. It is much cheaper to insure, and because it is much cleaner it is also cheaper to tax. Only problem is that I am not sure how it will feel for longer journeys and how it will drive on the motorway. Then again, it may be cheaper to rent a bigger car for long journeys than keep one in the drive all the time.
What do you say: to sell our car or not to sell?