We are often asked whether or not physicians should buy or lease a vehicle. While doctors are stereotyped for having expensive and flashy vehicles, we all want to make wise financial decisions when it comes to choosing a vehicle.
People often spout that leasing a vehicle is just throwing money away. But is it? It can be argued that there is a time and place for leasing a vehicle over buying. We dive into the different nuances of buying vs leasing in this episode of Physician Cents.
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[3:00] Buying a car is a values-based conversation
[4:53] What do you value in a car?
[12:33] It’s not about keeping up with the Joneses
[14:22] Is leasing a bad idea?
[18:08] Bonus of leasing: You don’t handle repair costs
What do you value in a car?
What are you trying to accomplish? Do you need a safe car for your family? Do you just need to get from point A to point B? Once you know what you care about, look at the metrics to make your decision.
What are your current obligations outside of the car purchase? What’s left over after current costs? The metrics have to make sense. It’s a cashflow and savings issue. We recommend that you never let your total debt ratio go above 36%.
Many people think they can lease a safer car than they can afford to buy outright. But most residents are driving from their homes to the hospital. They aren’t racking up mileage. It may make sense for them to lease a car. It’s not a bad idea because it’s safe and reliable.
Chad leases his family vehicle because he knows that every three years, he wants the newest and best safety features. Secondly, kids will destroy your car. The fact that he can trade it for a shiny new car every three years makes his heart happy.
It’s not about keeping up with the Joneses
It’s not uncommon to pull into the doctor's lot at the hospital and see Porsches, Teslas, and the newest BMW. You may be sitting there thinking, “I can’t drive in here with a Honda Civic.” But you can’t care what everyone thinks.
You have to make the best decision for you. When you see someone driving that fancy car, you don’t know their whole story. Make good financial decisions based on what you and your family value most.
Is leasing a bad idea?
We’ve run into so many clients who say, “Leasing is horrible.” But it’s not any different than renting an apartment or home. You won’t have mileage issues. You’ll have a safe vehicle. You can get a new car every few years. If you find yourself buying a car and wanting something new every few years, a lease may make sense for you.
Chad recently climbed into his car and turned it on and all of the lights came on. Long story short, the car wasn’t safe to drive. He sat there thinking, “Thank God I lease, because this isn’t going to be cheap to fix.”
Secondly, the part they needed to get wouldn’t be available for two weeks. The dealership had to cover his costs for a temporary vehicle until his lease was fixed. It’s just another reason leasing can be less stressful.
There’s no right answer here. Whether you buy or lease your car, it will rarely impact your retirement. But if you’re still trying to pay off loans, buy a house, or have a child on the way, you need to make smart choices.
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Chad Chubb, CFP®, CSLP® on Twitter: WealthKeel