InspireMyCapital.com | The Car or the Cash? How About Both
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Tesla 2

05 May The Car or the Cash? How About Both

I was chatting with one of my golfing buddies a couple weeks ago. He recently bought a top of the line Tesla Model-S after obsessing about the car for the last few years. We took a short drive through his neighborhood and went briefly on the freeway. The car can go from zero-to-sixty miles per hour in 3.1 seconds and seemingly brake even quicker. Wow!

The car came with all the latest upgrades one could ask for: a touchscreen instrument interface, Autopilot driving system, ultra high fidelity sound system, …basically the works. There was just one little thing that bothered me – he paid for the car in cash.

You might say…

“Why shouldn’t he buy it outright? He did have the cash and he doesn’t have to worry about monthly payments.”

That is true, and it’s also true that he could easily afford the $85,000 he laid down for the car. But the thing is – it wasn’t a financially savvy move. Not only because cars quickly depreciate in value, but because he could have kept the $85,000, still driven the car, and earned a secure, attractive return all at the same time. Let me show you how:

My friend could have had BOTH the car and the cash working for him if he had leased the car instead. If he had chosen to lease the car, he would have been free to invest the money in a passive, cash flowing asset (e.g. real estate fund) while enjoying the benefits of driving his luxury car. The cash flow from his investments could have not only paid for his lease payments, but earned him a little additional income. In other words, by leasing the car, he could have put his money to work for him in other investments while enjoying the car too. Moreover, at the end of his lease term, he’d still have his $85,000 principal (plus additional investment income) rather than a vastly depreciated asset that he now has to sell or trade-in for a loss.

Fortunately for my golfing buddy, the money he spent on his car is but a drop in the bucket. For those of us who aren’t made of money, having your money work for you is not only financially wise, but necessary to preserve and generate wealth. I know a lot of our investors are concerned about balancing consumption spending with investing, but hopefully this article has helped you think of new ways to have your cake and eat it too.

If you’d like to learn more about adding real returns to your investment portfolio, please feel free to contact us at 626.788.9700, click here, or stop by for a drink at one of our Happy Hour Investing events if you’re in the Los Angeles area.