When it comes to financial advice, there are few people as well-known as Dave Ramsey. His 7 Baby Steps have helped millions of people get their finances in order and achieve their goals.
But you may be asking yourself, does the program really work?
In this blog post, we will break down each step of the program and give you our opinion on whether or not it is effective.
We will also provide some tips on how you can follow the steps yourself and see results!
This post may contain affiliate links; please see our disclaimer for details.
Breaking Down the Dave Ramsey 7 Baby Steps
Dave Ramsey’s philosophy for personal finance is based on the idea that you shouldn’t take unnecessary risks with your money.
A simple and disciplined approach will set you up for success in the long run.
It is not the most exciting approach, but it has proven effective for many people.
However, it may not work for everyone. This is because mindset and behavior are key factors in financial success.
Some people don’t find any issue with a slow and methodical approach, while others crave the excitement of taking risks.
Dave Ramsey’s baby steps will work wonders for someone looking to settle down, raise kids and save for retirement.
Young entrepreneurs with ambitions that differ from these aspirations may find the program too restrictive.
It depends on your goals, lifestyle, and risk tolerance.
That said, Dave Ramsey’s baby steps include insightful wisdom about personal finance that anyone can benefit from.
Let’s explore each of his financial steps in more detail!
Baby Step 1: Save $1,000 to start an emergency fund
The first step is to save $1000 as quickly as possible.
This may seem like a lot, but it is important to have an emergency fund in case something unexpected comes up.
Once you have saved this money, you can move on to the next step.
Tips for this baby step:
Start by saving $50 from each weekly paycheck. This will get you to your goal of $1000 in 20 weeks.
If you get a bonus or tax refund, put it towards your emergency fund.
Cut back on expenses so that you can save more money each month.
Dave Ramsey recommends this because it will save you a lot of money in interest payments.
He also believes that your home should be paid off before you retire.
Having a place where you can live rent-free can be a huge financial burden lifted off your shoulders in retirement.
It can free up cash flow for other things, like travel or hobbies.
Tips for this baby step:
Make extra payments each month.
Refinance to a shorter loan term.
Apply any windfalls towards your mortgage balance.
Baby Step 7: Build Wealth and Give (Like No One Else!)
Dave Ramsey recommends that you invest in mutual funds.
He also believes that you should give generously to charities and other causes that are important to you.
His belief on wealth is that it should be used to bless others and not just for your personal gain.
Dave Ramsey is not a fan of gambling or higher-risk investments. This is because he has seen too many people lose their hard-earned money in these types of investments.
Tips for this baby step:
Invest in a mix of different mutual funds to help minimize risk.
Save automatically each month with a dollar-cost-average strategy.
Give generously to charities and other causes that are important to you.
Do the Baby Steps Really Work?
Ramsey’s baby steps have helped people across the globe get out of debt and live better lives.
Although we do not follow all of his steps, we feel most of his teachings are on the right track, especially for those looking to gain control over money and avoid risk.
Having an emergency fund has provided us with profound peace of mind. The debt snowball helped me pay off 56K in student debt!
Using cash to buy reliable second-hand cars has been a great benefit to us as well.
We have also opened up education savings accounts for both of our kiddos.
We follow most of Dave’s teaching but with a few key differences.
We believe that you should start saving for retirement as early as possible.
The earlier you start, the more compounding interest will work in your favor, even if it’s just a little each month.
We agree that consumer debt should be paid off aggressively. However, not all debt is bad debt.
Debt can be a wise investment decision and can be used to purchase assets, such as real estate or a business.
We currently have one rental property and see it as a valuable asset where the reward outweighs the risk.
Using credit cards to build credit has been a great tool for us, but they must be used very carefully.
Step 5 is also not applicable to everyone as some people prefer not to have children or cannot have children. In this scenario, people can still benefit from following the other steps.
All in all, we think that Dave Ramsey’s baby steps are a great starting point for anyone looking to get out of debt and improve their financial situation.
However, it is important to take into account your personal circumstances when following his advice.
Some people believe that Dave Ramsey’s advice is too ‘old school’ and that he is too rigid with his approach.
Critics believe that he needs to get caught up with the new realities of finances. However, it is difficult to deny the timeless wisdom he teaches.
It clearly applies to money management, no matter what the current economic conditions may be.
Dave Ramsey Baby Steps: Conclusion
Whether you agree with him or not, Dave Ramsey’s baby steps have helped millions of people get out of debt and improve their financial situation.
For that, we believe that he is worth considering if you are looking for advice on getting your finances in order.
Dave Ramsey seems like a genuine person and really does take plenty of time to help people.
He is America’s favorite financial coach, and for good reason.
Ramsey provides practical solutions that have helped millions get out of debt and improve their lives.
Although we do not agree 100% with his exact steps, his teachings are fundamental and can undoubtedly be a saving grace for many people, including us.
We hope this has helped clear some things up for you if you are wondering whether Dave Ramsey’s baby steps actually work.
Do your own research and be sure to carefully consider your personal circumstances before making any financial decisions.
If you are considering using Ramsey’s baby steps to help you get out of debt, we suggest you speak with a financial advisor to see if it is the best action for your unique situation.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
This post may contain affiliate links; please see our disclaimer for details.
Do you ever wonder how long it would take for your invested money to double?
If so, you are not alone.
There is a whole field of study devoted to answering this question, called financial mathematics.
And one of the most popular methods for estimating doubling time is the Rule of 72.
In this blog post, we will discuss the rule of 72, how to use it, and how accurate it is. We will also show you how to apply this rule to your investment planning so that you can make smart decisions about your money!
What Is the Rule of 72?
The rule is a simple formula that can help you estimate how long it will take for an investment to double in value. The rule is based on the idea that investments grow at a compound interest rate. It shows how many years it will take for an investment to double if it grows at a given compound interest rate.
Think of it as a financial tool to help you understand the power of compounding!
The rule of 72 was developed by a 19th-century Italian mathematician named Leonardo Pisano, also known as Fibonacci.
It can be used for any investment, including stocks, bonds, and savings accounts.
You can use this rule to estimate the doubling time if you know the compound interest rate.
The Formula for the Rule of 72
The rule of 72 formula is as follows:
72 / Compound Annual Growth Rate = the number of years until your money doubles.
For example, if you are earning a 12% compound annual return on your investment, it would take approximately 72/12 = 6 years for your money to double.
A great way to use the formula is to estimate how long it will take for an investment to double.
The rule cannot be used to estimate other financial goals, such as how much money you will have after a certain number of years.
It is also important to know that the rule of 72 only applies to investments that compound interest regularly.
The rule of 72 is not an exact science. It’s a general guideline that can help you estimate how long it will take for your money to grow.
The math is accurate, but often investments won’t have a fixed interest rate.
In addition, the rule of 72 doesn’t take into account any fees or taxes that may be associated with your investment.
So, the rule of 72 can give you a general idea of how long it will take for your money to grow.
Talk to a financial advisor to get a more specific estimate when it comes to your own investments.
In general, the rule of 72 is accurate, but you must consider other factors that may affect your situation.
When using the rule of 72 for your investment planning, it’s important to be mindful of these variables.
M1 Finance is a great investment opportunity with its robust yet simple app. There are ZERO commissions or account management fees.
Deposits $1,000 or more into your M1 Invest account within two weeks of signing up and get a cash bonus of $30-$500 to that account.
It is not just a trading stock brokerage account but also offers an IRA option that allows you to invest in your retirement.
We highly recommend using M1 Finance to open a brokerage or retirement account! M1 Finance can undoubtedly help you on your financial independence journey.
How to Use the Rule of 72 for Your Investment Planning
Now that you know the rule of 72 and how it works, you can start using it to help make investment decisions.
For example, let’s say you are considering investing in a stock with a history of growing at a rate of 20% per year.
Using the rule of 72, we can estimate that it would take approximately 72/20 = roughly 3.6 years for your investment to double in value.
This can be a beneficial way to compare different investments and decide which one is right for you.
You can also use the rule of 72 to see how much your investment would compound and double over and over again.
Imagine you had a $1000 investment that doubled every four years. That would be an 18% interest rate (72/16 = 4).
After only 12 years, you would have $8000.
Now, let’s explore the wonders of compound interest and stretch the timeline to 24 years.
After 24 years, assuming a consistent 18% interest rate minus fees and other expenses, you would have $64,000.
As you can see, with just $1000 and a little time, the rule of 72 can have your money working hard for you.
You would have made $63,000 in profit for no extra work. Consistent contributions and a larger initial investment can increase this.
Let’s say you have just $5000 instead of $1000; here is what the rule of 72 shows us:
After only 12 years, you would have $40,000. In 24 years, your investment of $5000 would grow to $320,000.
With the rule of 72, you can get a quick estimate of how your investment will grow over time. This can be helpful when you’re trying to decide how to invest your money.
The rule of 72 can Estimate How to Pay Off Debt
For example, let’s say you have a credit card with a balance of $1000 and an interest rate of 18%.
If you missed your four-year payments your debt would double to $2000 (72/18 = 4). After another four years, you would owe an additional $2000 with a total of $4000 in debt.
The rule of 42 can be used to see how quickly debt can compound out of control.
It’s a clear mathematical model that depicts the potential scenario if you don’t take action to get your debt under control.
This rule can help you plan and budget for your debt repayment. It also shows how compounding can also work against you if you’re not careful.
The rule of 72 can be a helpful tool when you’re trying to make financial decisions.
It’s important to remember that the rule is just an estimate and other factors can affect your specific situation.
Always speak to a financial advisor to get the most accurate information for your circumstances when in doubt.
In Summary
In conclusion, the rule of 72 is a helpful tool that can estimate how long your money will take to grow.
However, the rule of 42 only works if you have a fixed interest rate and doesn’t consider any fees or taxes.
The rule can be used to predict both investment growth and debt repayment.
When using the rule of 72, it’s important to remember that it’s just an estimate and other factors can affect your specific situation.
Always speak to a financial advisor to get the most accurate information for your circumstances when in doubt.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
This post may contain affiliate links; please see our disclaimer for details.
If you are new to the world of cryptocurrency, you may have heard the term NFT before.
But what does it even mean?
And more importantly, should you consider investing in them?
In this blog post, we will explain everything you need to know about NFTs – from what they are, to how to invest in them.
We’ll also discuss the pros and cons of investing in this new type of asset so that you can make an informed decision about whether or not it’s right for you.
YouTube Video I Made Covering NFTs
What is an NFT?
NFTs, or non-fungible tokens, are digital assets that are unique and cannot be replaced. They’re like virtual collectibles you can buy, sell or trade like any other asset. NFTs are on a blockchain, a decentralized ledger that records all transactions.
NFTs have been gaining in popularity lately due to the rise of cryptocurrencies and the growing interest in digital art and gaming.
For example, the popular game CryptoKitties allows players to buy, sell, or trade virtual cats that are each represented by an NFT.
Similarly, the online art platform SuperRare allows artists to sell their digital artwork as NFTs.
So why are NFTs so popular?
One reason is that they’re scarce and thus have the potential to be quite valuable.
Another reason that NFTs are interesting is because of the utility value that can be attached to them.
For example, you could use an NFT to represent a ticket to a concert or a virtual world.
Some people believe that NFTs will revolutionize the way we interact with the digital world.
Many traditional industries may also start adopting NFTs.
The real estate industry could start using NFTs to represent ownership of property.
NFTs are still in their early days and it’s hard to say where they will go from here.
But one thing is for sure: they’re providing a new way for people to interact with and invest in digital assets.
So if you want to learn about the world of NFTs, be sure to do your research and understand the risks before investing.
NFTs, or non-fungible tokens, use the same blockchain technology but are not technically classified as cryptocurrency.
They are non-fungible, meaning they are unique and cannot be replaced by another token.
On the other hand, cryptocurrencies such as Bitcoin and Ethereum fall within the same token category.
NFTs are can represent digital assets, such as art, music, or videos. While cryptocurrencies are tokens that help blockchains run.
With these, you can purchase goods and services, or trade for other assets.
NFTs are not the same as cryptocurrencies, but they are similar.
You can decide to buy, sell, or trade both NFTs and cryptocurrencies which are digital assets.
And both NFTs and cryptocurrencies are stored on a blockchain.
All cryptocurrencies must be identical for them to be convertible.
NFTs benefit from their unique qualities. This is because NFTs can represent assets that are one-of-a-kind, like a piece of digital art or limited edition access to utility functions.
Unlike Bitcoin or Ethereum, which can be divided into smaller units, NFTs cannot be divided or exchanged for other assets.
This divisibility is one of the reasons why Bitcoin and Ethereum have value. NFTs, on the other hand, have what is called “intrinsic value.”
Intrinsic value is the value that an asset has because of its usefulness or rarity.
How To Invest in NFTs?
If you’re interested in investing in NFTs, there are a few things you need to know.
First, it’s important to understand that NFTs are still a new and emerging asset class.
As such, they come with a higher degree of risk than more traditional investments.
Before investing in NFTs, be sure to do your research and understand the risks involved.
You should also have a clear investment strategy and know what you want from your investment.
General tips for investing in NFTs:
Start small: When investing in any new asset class, it’s always best to start small and gradually increase your exposure as you become more comfortable with the asset and the market.
Diversify your portfolio: Don’t put all your eggs in one basket.
When investing in NFTs, be sure to diversify your portfolio across several different assets and platforms.
Do your research: Like any investment, it’s important to do your research and understand the risks involved before investing.
Read up on the history of NFTs and the projects you want to invest in.
With these tips in mind, you should be well on your way to making smart and informed investments in NFTs.
Steps to investing in an NFT
Find a reputable NFT marketplace: There are several different NFT marketplaces where you can buy, sell, or trade NFTs.
Some of the more popular ones include OpenSea, Rarible, and SuperRare.
Create a web 3.0 wallet: To store and manage your NFTs, you’ll need a web-based wallet that supports the ERC-20 token standard.
Some popular options include MetaMask, Trust Wallet, and Coinbase Wallet.
If you are buying from another blockchain, you would need to use their native web 3.0 wallet.
Deposit funds into your wallet: Once you have your wallet set up, you’ll need to deposit funds into it so you can start buying NFTs.
The easiest way to do this is by purchasing Ethereum (ETH) with a credit or debit card on a site like Coinbase.
If you buy from another blockchain, you’ll need to purchase their native currency.
Choose the right asset: When investing in NFTs, it’s important to choose the right asset.
Make sure you select an asset you’re comfortable with that aligns with your investment goals.
Complete the transaction: Once you’ve found the right asset, the next step is to complete the transaction.
You can do this using a cryptocurrency exchange or NFT marketplace.
Be sure to carefully review the terms and conditions of the transaction before completing it.
How To Sell An NFT?
If you are ready to sell an NFT, you will need to take the following steps:
Decide where you want to sell: You can sell your NFT on popular platforms such as OpenSea, Rarible, and SuperRare.
You would want to ensure the marketplace supports the type of NFT you own.
Price your NFT: When setting a price for your NFT, consider the following factors: the rarity of the asset, the demand for the asset, and the current market conditions.
Create a listing: Once you’ve decided on a price, the next step is to create a listing for your NFT. You can do this in the marketplace of your choice.
Be sure to include clear and concise descriptions of the asset and any pertinent information potential buyers might need.
Wait for a purchase or promote your listing: The final step is to wait for a buyer to purchase your NFT or promote your listing to attract more buyers.
Once a buyer has been found, the transaction will be completed and the NFT will be transferred to the buyer’s wallet.
Pros And Cons of Investing in NFTs
The benefits of investing in NFTs include the following:
You cannot replicate NFTs, which makes them a scarce asset.
They are stored on a blockchain, which makes them immutable and secure.
You can buy, sell, or trade NFTs 24/7 on several marketplaces.
They can unlock networking and collaboration opportunities with other NFT owners.
You may obtain a distribution or intellectual property rights if it is written in the NFT’s smart contract.
However, there are also some drawbacks to investing in NFTs.
First of all, they’re still a relatively new technology and there’s no guarantee that their value will continue to increase.
Additionally, since NFTs are on a blockchain, they can be quite difficult to sell or trade due to the high transaction fees associated with blockchain transactions.
Finally, it’s important to remember that NFTs are still subject to the cryptocurrency market’s volatility.
Should I Buy an NFT?
There is no easy answer to this question. It depends on several factors, including your investment goals, risk tolerance, and the current market conditions.
If you support an artist or creator, find benefit in networking with a community, enjoy the utility, and/or can clearly articulate the appreciation potential, then buying an NFT might be a good idea for you.
However, if you’re not comfortable with the risks of investing in NFT and only want to invest to join the hype, then you might want to reconsider.
If you’re considering buying an NFT, be sure to do your research and consult a financial advisor to ensure that it’s the right decision for you.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
This post may contain affiliate links; please see our disclaimer for details.
Living paycheck to paycheck is a common occurrence for many Americans. A recent study found that over 64% of Americans are now living paycheck to paycheck.
If you’re one of those people, don’t worry – you’re not alone. It does NOT mean that you have to continue living this way.
You can take steps to stop living paycheck to paycheck and start building wealth for the future.
It’s important to have strategies and steps to break the cycle of living paycheck to paycheck.
Here are the five ways that you can do just that:
1) Know Thy Spending
This may seem like an obvious step, but hear me out.
It’s important to sit down and figure out where your money goes each month.
The first step is to make sure you have a clear understanding of your spending.
Next, you can make changes to ensure your money goes where you want it to.
To budget effectively, make sure to track all of your spending for at least a month.
Many helpful apps and websites, such as Mint or You Need a Budget (YNAB), can make this process easier.
Effective wealth management is imperative to discovering your financial freedom. That’s why we highly recommend PERSONAL CAPITAL.
Budgeting is the first step because it shows exactly how much money you have coming in and where it’s going.
From there, you can make changes to ensure that your spending aligns with your goals.
Take action on this first step to help you stop living paycheck to paycheck.
2) Make Saving a Priority
It can be difficult to save money when you feel like you are already struggling to meet ends.
However, it is important to remember that saving is an investment in your future.
You should set aside a certain amount of money each month that will go directly into savings.
This will help you build up a cushion for unexpected expenses.
Not to mention it also brings peace of mind knowing that you have some financial security.
One way to do this involves first looking at your current lifestyle. Then make changes that will allow you to live within your means.
For example, if you eat out several times a week, try cooking at home more often.
Or if you have a gym membership that you never use. Make sure to cancel it and start working out at home or outside instead.
Many people live paycheck to paycheck, not necessarily because they do not have a sufficient income. The problem occurs when spending money is spent on unnecessary items instead of allocated to savings.
Make saving a priority by setting up a budget and sticking to it.
Refining your money mindset to no longer need instant gratification and instead focus on long-term gain.
You will be well on your way to breaking the cycle of living paycheck to paycheck.
3) Pay Yourself First and Invest!
One of the best ways to break the paycheck-to-paycheck cycle is to pay yourself first.
Instead of paying the Uber driver, nightclub staff, and brand owners, put that money into savings first.
One of the best investments you can make is in yourself.
Examples include taking care of your health, continuing your education, and building your skillset.
When you invest in yourself, you are ensuring that you will always have something to offer.
Instead of investing your energy in non-productive activities, use that time to build a skillset or improve your wealth by attaining skills.
These investments will last a lifetime and provide you with more opportunities.
If your emergency fund is sufficient, you should also start investing your money instead of letting it sit in a savings account.
This is because inflation will keep you living paycheck to paycheck.
If the inflation rate is at 10%, for example, you would need a 10% raise to maintain your current standard of living.
A common misconception is that you need a lot of money to start investing.
However, there are many options available that allow you to start investing with very little money.
For example, Acorns is an app that allows you to invest your spare change. You can get $10 signing up when you use this link! – ACORNS $10 SIGNUP BONUS.
With the rate of money printing stealing your wealth and advertisers asking you to pay their businesses first, it can be difficult to resist this temptation.
However, if you want to stop living paycheck to paycheck, you must start paying yourself first.
M1 Finance is a great investment opportunity with its robust yet simple app. There are ZERO commissions or account management fees.
Deposits $1,000 or more into your M1 Invest account within two weeks of signing up and get a cash bonus of $30-$500 to that account.
It is not just a trading stock brokerage account but also offers an IRA option that allows you to invest in your retirement.
We highly recommend using M1 Finance to open a brokerage or retirement account! M1 Finance can undoubtedly help you on your financial independence journey.
We only have so many hours we can work each day. Even if we consistently got a raise, the total amount of money we could make is still capped.
The best way to increase your income is to create or invest in passive cash flow-producing assets. Then you can start making money 24/7.
Making money while resting, improving your skillset, or being busy with any other activity is essential to financial success.
You can invest in stocks, bonds, and mutual funds to get started.
You can also create a blog or YouTube channel and generate revenue through ads and sponsorships.
You can buy a rental property or create an online course if you have more money to invest.
There are many options available to you, and it is important to research to find the best option.
However, once you have started investing in passive cash flow-producing assets, you will be on your way to financial freedom.
The key to financial freedom is reinvesting this passive income each month to allow for more cash flow and eventually break the paycheck-to-paycheck cycle.
You will be surprised by how much of a difference even a few hundred dollars a month can make on your bottom line.
If you do not have any money to invest in a passive income source, focus on creating one in your spare time.
For example, a dropshipping business can be started with very little money. The key is to focus on generating revenue and not letting your expenses exceed your income.
Another online business that can be set up to create passive income is a content creation service.
You can hire virtual assistants for a low cost and train them to use free design programs like Canva.
Once the system is built, you can sell your services to brands and outsource all the design work to your team.
You can also sell unused items in your home and reinvest that money in passive income-producing assets such as vending machines or a rental property.
If you are a few dollars short, consider working overtime or picking up a second job to afford the investment.
Of course, you can invest in dividend-paying stocks or distribution-producing REITs to generate passive income.
Another option is to try peer-to-peer lending. These require fewer business skills and more research to find the best opportunities.
However, they can be a better option for some people as they can be easier to start.
Once you have started generating passive income, it is important to reinvest that money so you can continue to grow your wealth.
As you can see, being creative in your approach can unlock many opportunities to bring you out of the paycheck-to-paycheck cycle.
Passive income is not reserved for those that are already rich.
In fact, it is often the best way for those with limited resources to get started on the path to financial freedom.
5) Say Bye Bye to Debt
We left this step last because it is the most difficult one to overcome.
Debt is so difficult to pay down because it has a way of creeping back up on you after you have made progress.
It may be helpful to focus on passive income-producing assets first because you can use that income to pay down your debt faster.
The extra cash flow will give you more breathing room to make progress on paying off your debt without sacrificing other areas of your budget.
Just make sure you are paying down at least the minimum while mastering the other steps on this list. This will help prevent your debt from spiraling out of control.
If you are struggling to make ends meet, consider using a debt consolidation loan or credit counseling service to help you get out of debt.
These services can help you develop a plan to pay off your debt and get your finances back on track.
Remember that not all debt is bad debt.
Debt can be used to purchase assets that produce cash flow and help get you out of a paycheck to paycheck cycle.
Just be sure to use it wisely and not let it get out of control.
Consumer debt, such as credit cards and lines of credit, should be paid down as quickly as possible.
If you can focus on avoiding this type of debt, you will be in a much better position to stop living paycheck to paycheck.
The Bottom Line
If you want to stop living paycheck to paycheck, you need to increase your monthly income while decreasing your monthly expenses.
Once you have a positive cash flow, invest that difference into income-producing assets.
Repeat this step by reinvesting and start paying down your consumer debt if you have any.
There are many different ways to increase your income and decrease your expenses. The most important part is to start now.
You can be creative in your approach, or you can follow a simple strategy.
The journey to financial freedom varies, so find what works best for you and stick with it.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
This post may contain affiliate links; please see our disclaimer for details.
When it comes time to buy or lease a new car, there are a lot of factors to consider.
You may be asking yourself the following questions:
What’s the difference between leasing and buying?
What are the pros and cons of each option?
In this blog post, we’ll break it all down for you!
We’ll discuss the benefits and drawbacks of leasing vs. buying a car, so you can decide what’s best for you. 🙂
My YouTube Video Sharing The Differences Between Leasing or Buying a Car
What’s the difference between buying and leasing a car?
The biggest difference between buying and leasing a car is that you own it outright when you buy a car.
You can sell it, trade it in, or keep it for as long as you want.
When you lease a car, on the other hand, you’re essentially renting it from the dealership for a set period (usually two to four years).
At the end of your lease term, you can buy the car, return it to the dealership, or lease another one.
Another difference is that you’re responsible for all repairs and maintenance when you buy a car.
However, the dealership is typically responsible for any necessary repairs or maintenance with a leased car.
Another difference is that when you buy a car, you are spending a lump sum of cash or taking out a loan to pay the car in full.
When you lease, on the other hand, you’re only responsible for paying a monthly fee to use the car.
If you miss payments on a lease, the dealership can repossess the car.
If you miss payments on a loan for a car you’ve bought, the lender can repossess the car as well.
However, if you buy the car in full, you won’t have any payments and won’t risk losing the car to repossession.
Another key difference between buying and leasing a car is that when you buy a car, its value depreciates as soon as you drive it off the lot.
With a leased car, you’re only responsible for the depreciation during your lease term.
Car ownership is also a larger commitment to the vehicle as it may be difficult to get out of a car loan.
We recommend buying a reliable car with cash if at all possible and explain this further in an article I wrote – 6 Reasons to Buy a Car with Cash
If you bought the car and it breaks down shortly after, you may be “stuck” with the car until it is fixed or find another transportation source.
On the other hand, if you lease a car and it breaks down, you can bring it back to the dealership and get a new one without worrying about repairs.
A lease can be more flexible as you can return the vehicle or upgrade to a new one at the end of the lease term.
To summarize, here are the key differences between buying and leasing a car:
When you buy a car, you own it outright. When you lease a car, you’re essentially renting it from the dealership for a set period.
The dealership is typically responsible for necessary repairs or maintenance with a leased car. You’re responsible for all repairs and maintenance when you buy a car.
You’re responsible for the entire purchase price when you buy a car. When leasing, you’re only responsible for paying a monthly fee to use the car.
If you miss payments on a lease, the dealership can repossess the car. You don’t have to worry about repossession if you buy the car.
Pros and cons of leasing a car
Leasing a car has its pros and cons, like everything else. Here are a few things to consider if you’re considering leasing a car.
PROS
You can drive a brand new car every few years.
Leasing generally has lower monthly payments than buying.
The warranty covers most repairs when you lease, so you don’t have to worry about unexpected costs.
You may be able to get into a nicer car than you could afford to buy outright.
CONS
At the end of the lease, you don’t own anything.
You’re restricted in how many miles you can drive each year. Going over the limit will cost you.
You may have to pay extra fees at the end of the lease if you want to keep the car or if there’s damage.
Leasing generally means higher insurance payments than if you owned the car outright.
So, those are a few things to consider before leasing a car. It’s not necessarily the right choice for everyone, but it could be a good option for some people. Weigh the pros and cons and make the best decision for you.
Do your research before signing a lease to ensure you understand all the fees and restrictions. And be sure to drive safely and within the mileage limits to avoid extra charges!
Pros and cons of buying a car
Like leasing, there are pros and cons to buying a car. Here are a few things to consider if you’re considering buying a car.
PROS
You own the car outright and can do what you want with it.
There’s no mileage limit, so you can drive as much as you want.
You don’t have to worry about extra fees at the end of the lease term.
Insurance is generally cheaper when you own the car.
CONS
The initial purchase price is usually higher than leasing.
You’re responsible for all repairs and maintenance costs.
You may have difficulties selling the car later on down the road.
So, those are a few things to consider before buying a car. As with leasing, it’s not necessarily the right choice for everyone.
Examine each option’s advantages and disadvantages so you can make an informed decision.
Before purchasing a vehicle, do your homework and make sure you know all the expenses and limitations.
And be sure to drive safely to avoid any accidents!
Should You Buy or Lease a New Car?
Ultimately, it depends on your individual needs and circumstances.
If you like to have the latest and greatest car every few years, leasing might be the best option.
But buying might be the way to go if you want to keep your car long-term and don’t mind taking on repair costs.
There are a few other things to remember when deciding whether to buy or lease a car.
For instance, buying might be a better option if you plan to drive more than 15,000 miles per year since most leases have mileage limits.
And if you like to customize your car, buying might also be the better choice since you can make any modifications you want without worrying about violating the terms of your lease.
Another thing you should consider is your credit score. If you have good credit, you’re more likely to get a lower interest rate when financing a car purchase.
But if you have bad credit, you might not be able to qualify for an auto loan at all. In that case, leasing might be your only option.
Buying a car with upfront cash can also open you to opportunity costs.
For example, a $10,000 car will begin to lose its value within a year, but if a stock doubles over the next year, you would have been better off investing that money.
It is typically cheaper to lease a car than to buy one outright, but buying might be the more cost-effective option if you want to own the car long-term.
Ultimately, it depends on your financial circumstances and your driving habits.
It all comes down to personal factors and requirements.
There are benefits to buying a car and owning a vehicle, but it’s important to remember the opportunity costs or loan obligations of the purchase.
Leasing a car can be cheaper in the short term, but it’s important to be aware of mileage limits and other restrictions.
Do your research and make the best decision for you!
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
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