For a lot of things that cost a lot of money, there is usually an option to lease the item in question which essentially gives you what you want temporarily at a fraction of the cost of buying it. In most cases I would say it is better to simply buy the item if it is something that you will use a lot as you will basically be investing in something which will still have value as oppose to simply giving away your money.
Buying a home or some kind of place to live in is a great example of this Iâ€™d say. For a lot of people they look at it how there is no way they could afford that place which costs $200,000 compared to say paying less than a $900 a month to rent/lease something. Even when I look at that at first it seems like a logical choice to go for the $900 route if you are in a lower income bracket. When you really sit down and think about it though, it can really open up your mind in terms of thinking things in a bigger picture when deciding to buy or lease something.
These numbers are completely made up, but letâ€™s say for that $200,000 home you were able to arrange a plan that allowed you to payoff that home in fifteen years which is about $13,333 a year or roughly $1111.08 a month. At minimum, letâ€™s say we are living at this place for maybe 3 years. So if you were to just lease a place for $900 then your total would be about $32,400 and your current total in paying off that home within the third year would be $39998.88. Now the negative thing that comes to mind is now that you are moving, you still owe about $160,001.12 as a result of that fifteen year agreement. Is it really that bad though?
While I have to still have to payoff that amount, what if I decide to sell the home? Hypothetically, letâ€™s say I decide to sell it to someone else for exactly the same amount that I was going to pay for it which is $200,000. The person gives me that amount, I payoff the remaining balance that I owe and leftover is $39998.88. If you think about it, that means I just broke even where for the three years I was living at that house I was basically getting free rent. In the other scenario I lost $32,400 for the three years that I lived in a leased place. That sure puts things in a different perspective huh?
Now obviously it doesnâ€™t work exactly like that as you have to factor in things such as how selling the place would count as income and so you will have to pay taxes on top of that and at the same time there could be other factors that benefit you even more such as the value of your property going up. But hopefully that helps to open up your mind if you are normally one of those people who simply base your decision on whether to buy or lease something solely on your current income in a short-sighted way.