Updated: Aug 16, 2022
Welcome to the Redfish, Healthy, Wealthy, and Wise podcast. Our focus is to deliver information that helps you become healthy, wealthy, and wise. This podcast is sponsored by Redfish Capital Management, the views and opinions expressed here and do not necessarily represent the views and opinions of SCF securities, Inc, or any SCF related entity. This material is for general information only and is not intended [00:00:30] to provide specific advice or recommendations for any individual securities offer through SCF securities, Inc. Member FINRA, S I P C investment advisory services offered through SCF investment advisories Inc office at 1 55 east Shaw in Fresno, California, SCF securities, Inc, and Redfish Capital Management are independently owned and operated. SCF is not associated with other podcasts. And the messages contained within. Brad [00:01:00] Murrill and Redfish Capital does not offer legal or tax advice. This material is not intended to replace the advice of a qualified tax advisor or attorney please consult legal or tax professionals for specific information regarding your individual situation now for your host, Brad Murrill.
Hello everybody welcome to another episode of Redfish Healthy, Wealthy and Wise it is 12:45 on a Thursday afternoon and today is the 18th of November that's when I'm recording this I always like to put that on there because there's usually a couple days of lag time between when I record these podcasts and then sending it up to the producer getting it edited out correctly and then going through my compliance team to make sure everything I said it is OK to say and then I can post it for you little listen to so that's why I always do that today I wanted to discuss something that's been coming up in my office quite a bit you know I do two basic kinds of podcasts the first is the podcast that I do where I talk about what's going on in the markets in the economy I kind of called that before 11 and then I also do one that's more on financial planning business healthy well just and on a myriad of topics.
So when I was sitting down trying to determine what I would like to talk about this month what I tend to do is ask myself what are people asking me and what have I been talking about a lot and what I've been talking about a lot with folks recently is automobiles and cars and whether or not they should buy or they should lease in addition to that I also had to go through that process recently where I needed to buy two vehicles the first one was for my youngest son Jackson who is 18 and he did have a vehicle prior I bought him a Dodge Ram truck and this thing well let's put it this way when he turned into the neighborhood not my street not my driveway the neighborhood the dogs heads would pick up they knew Jackson was coming this thing was loud and it was beat up I'm not sure if it could go over 50 mph but it was a first vehicle and I wanted something that was rough and tumble and that it didn't cost I think I paid I'm not kidding I think I paid $2500 for it and maybe spent $1500 to get it ready so after almost two years this thing was falling apart literally we're talking glue duct tape whatever we can to keep it together and so finally I just said OK it's time he's going to be going off to College in the fall and this is not something I want him driving off to college I just don't think it's safe so I needed a new vehicle and at the same time my wife needed or wanted a different vehicle and she had held on hers for a long time so all that to say I go to the dealership and I'm sitting down and I bought Jackson a used truck out of a lot and then I bought my wife a new one so not a truck a car.
Anyway but I've had a lot of different people coming to me lately and asking about should I buy or should I lease and what are the financial ramifications so I thought this might be a fun little podcast to do today was talk about kind of the difference with those right now as you are aware or may not be aware it is hard to buy new vehicle and when I say hard it's because the supply and the demand out there as a result of being on the tail end of the COVID situation so all the factories shut down the transportation to get them down here and supply that's all been backed up so as a result what has happened is the most of the cars on the locks are used cars supply and demand of determine price so there was more demand in used cars than there was for new cars simply because you couldn't get them while the demand was saying but the supply was bigger so it shrunk the supply and so when the supply shrinks prices go up so there's not much of a difference right now in today's world between buying a new car and a used car so financially speaking it's going to be typically best to buy a new car if you can get your hands on one because the spread of the difference between new and used is not that big of a difference.
When you do buy a car just flat out by it and I'm going to talk about buying and leasing plus a new service that's becoming popular and is available now which is called a subscription service so with buying obviously you have to come up for the cash for it. If you don't if you're not going to pay for it in full then as you know you go through financing so you put down a down payment the difference with buying and leasing is at least in that down payment or the money that you put down that is equity because you are owning the vehicle so you can sell the vehicle at some point and get that money back out we're leasing is a little bit different is you don't own the vehicle you get to use it but you have to return it at the end of the lease unless you decide to buy it at that point so the upfront costs on a on a new car is cash down taxes registration and other fees now usually with leasing sometimes they'll put in the months first payment a security deposit acquisition fee taxes registration other fees but it ends up being a little bit less so the monthly payments this is where it makes the difference between the person who's buying and leasing the monthly payments on a purchase or generally going to be higher than lease payments simply because you're paying off the entire purchase price of that vehicle plus interest plus finances charge plus taxes plus fees so lease payments are almost always lower than loans because what you're really paying for is just the depreciation value over the course of that lease so if it's a three year lease you're paying for new minus the depreciation cost over the course of that vehicle so net it ends up being a lower payment the downside of that lease is at the end of that three year you don't have anything whereas the end of the three year period of when you're purchasing it you know you're still purchasing it but you own that vehicle out right.
There are some good and some bad depending on your particular situation and again when it comes up for the lease if when you're in the lease you can determine if you want to then purchase that vehicle at that lower price because it depreciate it over the course of three years or you walk away and then lease another vehicle which means of course another down payment that can include the first months payment or refund the full security deposit acquisition fee the taxes the registration blah blah blah it all adds in there so you have to do that again and again and again when does it make sense to do one versus the other I think the first thing you need to look at is how many miles per year are you going to put on it so if you're going to be putting on over 11 to 12,000 miles per year most likely a lease is not going to be in your best interest the reason why that's not in your best interest on a lease is they do have a limit on that number of miles you can drive so I've seen I've heard of as low as 10,000 I haven't heard of too many that are more than 12,000 I know in the folks that I was speaking to at the dealers you can negotiate a higher limit but if you go over that limit you will pay more money because you went over that limit the other I don't know if I'd call it a disadvantage or not but let's call it a disadvantage to leasing is on just wear and tear you do have to you're held responsible so if there's a collision there's bumps in the car torn seats you have to pay extra charges obviously if you own the vehicle there's nothing more to pay is your vehicle you should take care of it but you don't have to worry about the wear and chair wear and tear charges that take place on a particular lease you there not sure on the insurance if you can work that into a possible lease some people were saying yeah we can try to work something out but I never got a clear answer obviously with buying it you're going to have to have insurance.
I think there were another difference can come into is with taxes so I called a Henry win who's the accounting for all of you that that have his services here at redfish when it comes to taxing for business purposes if you own the car what you're kind of caught doing is you have to keep up with the mileage that you use for business there's the Max amount Loudon then I'm sorry a minimum and a Max and you put these figures in or you can try to calculate as best you can how many miles you use for business so the easiest way to do that in my opinion is I have a spreadsheet that I know the mileage to and from my house to get to work and then for my various clients that I meet with I go to Google Maps and I know exactly how much and so if I'm meeting him four times a year at their place of business or at their home I automatically put that into my spreadsheet I'm going there four times there is my mileage so I keep a running tabulation on my miles but Henry was saying when it comes to release it may be more tax advantageous because you can write off the cost to the lease and then you're not worrying about the miles so you may get more of a tax write off on your money by leasing a vehicle again remember the mileage situation.
In doing some research I've found that people are driving less and this is coming off of COVID and coming off of the new work from home model that is becoming more and more popular and as you know many businesses are turning to the word two from home model saying you know what if you want to come in twice a week once a week whatever that's fine so that's a lot less miles on a particular vehicle which then says OK maybe leasing may be the right thing for you to do so people have been doing more and more leases because they're driving less and they get to write off the entire amount of the lease on their taxes you can you're not on when you own it you may be some interest but you're not writing off those particular payments just the mileage so the total tax write-off can end up being more by leasing a vehicle than it is for buying so I thought that was some very interesting information.
So what you would have to look at is your particular situation if you're not driving as much maybe you're working from home or you're in the office twice a week or three times a week whatever the case may be it may be more beneficial to you to lease a vehicle in right all of that off some of the other things that I spoke about when I was talking to the dealers an each and I was in several of them as we were looking at a different vehicles and you know me I'm going to talk and chat people up and so I started talking with the sales people I would find out who's your top salesperson and because I just want to talk to him if they had time to talk to me and so we would just talk about how they do business how they are increasing their business they've been doing this for a number of years and they're obviously very good at what they do.
One of the things that they would share with me I would ask them do you prefer people to buy or to lease from their standpoint they don't care either way they're getting a credit for selling a vehicle so that's their job is to turn over as many as they can when it comes to release they all said we'd rather lease and the reason for that is they can go in their calendar they know the term of that lease they can start talking start talking to you six months prior to your lease being up about hey when do you want to come in and see these new vehicles you now in a different vehicle they don't want to see you in the same one they want you coming back so they said they do like the least because now they know that every two years every three years whatever that time amount is going to be your coming back into the dealership to read up on a different vehicle so I thought that was really interesting and so they do like the fact that there's lease and so they did share with me will tend to say well if the lease is going to cost you less and but that's not necessarily true overtime and so one of the things that I want you to know is certain oh is equal if you're in this particular situation and you're trying to determine whether or not you should buy or you should lease look at it over the course of three 5-10 years not just that one time period after a while if you are one of those that will have a car and drive it for many years and put 100,000 miles or more on it before you get a different vehicle buying is always going to be best for you not leasing because you're one of those that want to pay it off and then where you make your money back is you do have a depreciation appreciation if I can say the word aid appreciating asset however you have quit paying money into it whereas the Lease you're never going to quit paying money into it so I think for a long time people have been talking about the differences between leasing and buying.
There's a new service called a subscription model that is catching on right now here in US as far as the car makers are concerned there are four carmakers who have active subscription models Audi Lexus Porsche and Volvo and I'm going to concentrate more on Volvo and the reason why is they were the first to do it they rolled it out in Sweden and they've been phenomenally successful with this process So what is a subscription process you go to the dealer and you say hey I want to join the subscription service and you might pay $1000 a month but there's no time limit on the vehicle so other than the maximum amount if you want to come back in two weeks and say you know what I don't want to have the small one this 41 I now want more of an SUV find no change in the price really that's what you drive away with after three weeks you decide you don't like that you want to come back insert if you're one that likes to have new car first and to change amount periodically been a subscription service is really going to make sense for you I do know that enterprise rent-a-car car has started in I think it's three different states now Minnesota Missouri and Nevada they've started with their various cars at about $1500 a month Hertz has entered into this as well as some of you may have heard they've also bought a tremendous number of Teslas they're not listing that right now on their site on whether or not you can do that with a Tesla but it wouldn't shock me if they were to add that soon and then there's another company that started it's called 6th SIX t + 60 plus so these are going to be more luxury cars on their website they touted BMW Cadillac Mercedes and Land Rover they're not in Houston there they are in Dallas but they're in about 15 different cities and growing so with the subscription service it could be anywhere from $600 to $1500 a month but with that subscription it also is your insurance so you're not having to pay for car insurance because they're going to ensure that in the subscription price so that's going to save you a lot of money there too there's not going to be any maintenance on the car underneath the subscription model 100% of the maintenance is covered.
So if you're under this subscription model for of course a number of years you're switching out the cars whenever you want oil change tire rotation you need different tires that something happens with the back there will never be a cost to you it's all handled within the subscription So what you need to do is kind of add it up what it would be worth to you on whether or not the subscription model would make sense some people were saying that what they really liked about it then these are more column driving enthusiasts they'll switch him out often if they're going to be taking a road trip and they want something bigger or there or they want to go again to a small I know that I think this was the Porsche side of the Lexus side I forget which one they were letting him switch him out for different purposes they wound up making a change and it appears that that changes you now can swap at a maximum of two times a month now for me personally I can't imagine switching up my cars that often but some people like to have that freedom they like to have that ability to switch their cars out.
So let's kind of boil it all back down so three ways to walk away with a car that you need number one is to buy it #2 is to lease it and #3 would be a subscription styled service so if you are market or you know you know you're going to be in the market for a call for a car or truck what I would do is write out a graph but I'm just I'm built like that my dad is my dad's fault my dad was an engineer everything he did was in graphs and lines and guess what I inherited it that's what I do as well on one column to the left put by on the next bullet lease and on the third column do subscription and then look at the cost to you need to look at what your down payment is going to be what your total costs are going to be on the bike column plus remember maintenance and insurance on the lease side You're going to have less of a down payment you're going to have smaller payments but you're going to have to repeat that in a few years down the road I would then look at subscriptions subscription model 2 and put it's going to be higher than a lease but there's no maintenance there's no insurance so when you put all that in there add it up and find out what makes the most sense for you then I would also have a column in there or a align through all of them where it talks about the taxes if you are using it primarily for work that being the key look at how much you could possibly right off on lease payments and subscription services versus buying it might wind up if you're getting a tax deduction for almost the entire what you're paying for that car that ends up being a pretty good deal because net it's coming right back to you in the form of a tax deduction so it may make more sense dollars and sense wise to look at least then rather not to buy.
What it will I think mostly will boil down to is the number of miles that you're putting on your car per year so this was something that I recently went through we have a lot of clients that go through it if you want to discuss this just give us a call you know we'd love to talk with you any of us would and kind of walk you through those choices.
And then real quick I want to hit on my next topic it's just a very brief topic but it's one that I like to talk about this time of year every year because we are coming up on the Thanksgiving holidays and I just wanted to say how incredibly grateful and thankful I am for you the people who listen to this podcast for all of our clients out there for everyone that we speak with we don't have a career without you and we are so phenomenally grateful for you an what I recently was writing in a letter that's going to go out next week to clients is I think gratitude is a funny thing an I know that during the course of the day things happen we get frustrated days get long we get tired and sometimes I lose focus on the small things that bring me back into this attitude of gratitude if you will kind of about life one of the quick examples is you know that I've talked about it on these podcasts we were moving offices and we're in them now and I love it and so the old office was located directly above the buildings gymnasium which in and of itself it no problem but around 11 between 11 and two every day there was a certain person or persons who would come into work out and they would crank up their music now I could hear not quite well enough to hear the lyrics but it was not my kind of music number once I was like but the second thing is that these were workout grunters now I don't know if you work out a lot but you've seen a grunter in the gym before between every Rep that and then there are yelling in there clapping when they're done I'm like I had these grunters below me and I'm like you've got to be kidding me so I'm having a client meeting I'm on the phone and I'm talking and what I hear in the background is this boom music and then there not there screaming it sounded like Zach Grienke pitching in a very quiet stadium you hear absolutely everything and I was pulling my hair out well there's nothing I could do about it.
So we changed offices we moved or guess what the new office comes with a new set of noises but these noises are a little bit different the noises that I've got now see below me is a Center for children with autism in I'm not for sure but I think that the room that is below me is the playroom for these children so throughout the day I do hear noise in my office however this noise is laughing children now these are kiddos who have various forms of autism and there's various levels on the spectrum of I guess good to worse I don't know but I know that wouldn't seeing the children that walk in or wheeled in or are carried there's all end different levels of autism kids with autism that are brought in but what you hear is joy when these kids are just laughing hysterically I do not have any kids with severe autism I can only imagine that would be a tough job as a parent it's a tough job being a parent but if a child is ill with autism I imagine it comes with its own set of unique challenges that I don't have nor have I experienced but these kids regardless of what's going on there down there just laughing hooting it up shrieking an I can't help but to smile when I'm working and sometimes it will pull me out of a bad attitude if I'm working on something in the numbers aren't working or I'm working with there's just different you know how it is when you're working there are different frustrations within the day but just that simple laughter can really pull me out sometimes of my own self-centered thinking when I'm caught up in something so minor like these numbers aren't adding up or I have to pay a certain bit more in taxes stuff that is really minor in life and that's what they were mining me up.
The analogy that I like to use is there is a fantastic book out there were many years ago and the gentleman in there was simply referring to this attitude of gratitude as a new pair of glasses and he says it's kind of like just putting them on I happen to be one that needs to wear readers because I just don't see as well as I used to and so if I want to read something I have to put on my reading glasses but as soon as I put on my reading glasses what I'm reading comes into focus and he seemed to think that gratitude was much the same way that when you put on the proper lens that lets you see life and really how good that it is and how good we have it when we're wearing those lens life comes into focus very clearly and you can see how beautiful it is and so I am so grateful that my office is now located over the playroom for these particular kids because it really does help adjust my attitude throughout the day so again I thank you from the bottom of my heart for the business for listening to the podcast for your friendships for your discussions your emails thank you so much I hope you have a wonderful Thanksgiving I hope you find your glasses and you put him on and you start seeing life through a different lens have a great holiday talk to you soon.