Since most people don't have the cash to buy a new car, it often comes down to a decision between leasing and buying with the help of an auto loan. Here is a quick look at the main benefits of each type of car financing.
Lease or Buy? It's Also a Lifestyle Decision
First, it's important to understand that the decision of whether to buy or lease isn't just a dollars-and-cents decision. It depends on the intangible importance you give to owning a new car. If the image of driving the latest model is essential to you, then you'll justify spending more money for this privilege. If you look at a car as merely transportation, then owning the newest car on the block will be lower on your priority list. Give these questions some thought as we move on to the more tangible issues of buying with the help of an auto loan versus car leasing.
When Car Leasing Makes Sense
There are several aspects of car leasing that make it very appealing: Low down payments, low monthly payments, low maintenance costs. However, the main advantage is that a customer (with good credit) can get a car without putting much money down, and the monthly payments will be lower than if you bought the car with the assistance of an auto loan. Furthermore, since most cars are under warranty for three years, the car will be fully covered for mechanical breakdowns during the length of the lease.
Look at the Big Picture
So far, car leasing sounds almost too good to be true. There is a drawback, however. Once you start leasing, you always have a car payment. When you get to the end of your auto lease, you have to begin leasing again, or buy the car. When you buy the car, you eventually pay the car off and actually own it. At this point, you can continue driving the car as long as it runs. Sometimes this is another five, six or seven years. And for those years, your expenses are minimal.
Buying New or Used or Leasing — The 10-year picture
In the following example, we show you what it costs to buy and own a new or used car or to lease a car for 10 years. In these examples, we assumed that the car was worth $20,000 when new and was financed at a 6 percent interest rate. Also, in each case, a down payment of $1,000 was made. These figures are estimates to give you a comparative feeling for these different car financing scenarios.
If You Buy Your Car:
Purchase your car with the help of an auto loan, and you will make higher payments for the first five years, but then you will own it. Over 10 years, this averages $191 a month or a total cost of $22,920, not including insurance, maintenance and the like.
If You Lease Your Car:
Purchase your car with the help of an auto loan, and you will lease more than three times, each time making an initial payment of $1,000 and monthly payments of $323. For 10 years, this is a total of $41,760.
If You Buy a Used Car:
If — with the help of an auto loan — you buy a four-year-old used car for $8,000, put down $1,000, and pay it off in three years, your average monthly ownership cost will be $63 for a total of $8,632 for a 10-year period. Of course, a used car might require more maintenance, but if you allow an additional $5,000 for repairs, your total is still less than $14,000.
Saturday, August 9, 2008
Childcare Finances - Some Money Basics
Your childcare is a business. While you may not need to formally create a legal business, there are options to consider if you have an especially large operation, or employ more than one person. From a legal standpoint, different types of entities provide limited liability. This is something you would want to discuss with a lawyer. Different entities also provide different tax advantages and disadvantages. The type of entity really depends on the business and how many people own the business. An accountant should be able to advise you on the best entity for your situation. What can you deduct on your taxes? Any why would you want to? Each time you claim something as a deduction on your taxes, you reduce the amount of money the government can tax. By reducing that amount, you can reduce how much tax you pay, letting you keep more of your money.
A simple rule of thumb to remember is any ordinary and necessary business expense is deductible. Keep in close contact with your accountant, and find one if you don't have one. Regular meetings or discussions with the accountant will help in working through what is considered ordinary and necessary for your business. Be sure to keep in mind all the expenses you incur when doing business - ie., don't forget things such as mileage on your vehicle. Trips to the bank to deposit your weekly daycare income, for instance, is an ordinary and necessary business expense that is deductible.
Who has time to file receipts after a day with the kids? Even though resting from your busy day sounds better than filing you receipts for groceries that week, stay on top of your paperwork and make sure you keep records of all the money you spend on your business. From the IRS point of view, the more records and documents to substantiate your position, the better. Invoices, receipts, credit card statements, bank statements and cancelled checks are all good evidence of the expenditures incurred. There are also several accounting programs - available at any store that sells computer software - that are inexpensive and work great for tracking expenses and providing useful financial reports. Several online companies sell software specifically for childcare providers. Be sure to set up a filing system for your records. It doesn't need to be fancy, as long as it makes sense to you and you can find your records once tax time comes around. Keep work and personal expenses separate Having a separate checking and savings account for your business will make keeping track of your finances a lot easier. Sure, you have to balance another checkbook, but you'll know that all money in and out of those accounts has to do with your business. Also, consider getting separate credit cards for the business. When you use all of these accounts exclusively for business, it is much easier to put all your records together, rather than trying to separate out what is business and what is personal. Ahh, taxes. Where do we start? Tax laws are so specific to your state and city, that it's hard to give even general guidelines. You may want to check with a local accountant or state and local tax authority to find out if there are any special rules, permits or taxes that you may need to run your business. Paying your taxes quarterly might be an option, so you can spread the payment out over the year instead of paying it all at one time.
A simple rule of thumb to remember is any ordinary and necessary business expense is deductible. Keep in close contact with your accountant, and find one if you don't have one. Regular meetings or discussions with the accountant will help in working through what is considered ordinary and necessary for your business. Be sure to keep in mind all the expenses you incur when doing business - ie., don't forget things such as mileage on your vehicle. Trips to the bank to deposit your weekly daycare income, for instance, is an ordinary and necessary business expense that is deductible.
Who has time to file receipts after a day with the kids? Even though resting from your busy day sounds better than filing you receipts for groceries that week, stay on top of your paperwork and make sure you keep records of all the money you spend on your business. From the IRS point of view, the more records and documents to substantiate your position, the better. Invoices, receipts, credit card statements, bank statements and cancelled checks are all good evidence of the expenditures incurred. There are also several accounting programs - available at any store that sells computer software - that are inexpensive and work great for tracking expenses and providing useful financial reports. Several online companies sell software specifically for childcare providers. Be sure to set up a filing system for your records. It doesn't need to be fancy, as long as it makes sense to you and you can find your records once tax time comes around. Keep work and personal expenses separate Having a separate checking and savings account for your business will make keeping track of your finances a lot easier. Sure, you have to balance another checkbook, but you'll know that all money in and out of those accounts has to do with your business. Also, consider getting separate credit cards for the business. When you use all of these accounts exclusively for business, it is much easier to put all your records together, rather than trying to separate out what is business and what is personal. Ahh, taxes. Where do we start? Tax laws are so specific to your state and city, that it's hard to give even general guidelines. You may want to check with a local accountant or state and local tax authority to find out if there are any special rules, permits or taxes that you may need to run your business. Paying your taxes quarterly might be an option, so you can spread the payment out over the year instead of paying it all at one time.
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