Chuck Swanberg . com

Leasing a BMW 323i was the worst financial mistake that I have ever made. Terminating the lease was the best financial move I have ever made. I was fresh out of college working at my first job as a software consultant. It must be something about getting your first raise in life that makes you feel invincible. At least, that is how I attempt to rationalize the decision to lease a car that I couldn’t come close to affording. Well, that and girls, I suppose.

The car cost about $31,000, easily more than half of my salary at the time. I paid $3,750 down to make the lease payment $469 per month. It was a payment that I could afford. However, that is about as far as my thinking went for awhile.

I did enjoy driving the BMW while I had it. It was fast, it cornered well, and let’s face it, I was cool. I thought I was cool and maybe I was to certain people. I can’t remember exactly how it happened, but buyer’s remorse set in and I began to realize that for all the money I was spending, I owned nothing. I started cranking out spreadsheets to help me analyze the numbers. The numbers were not good.

I calculated three scenarios, 1) continue the lease full term, 2) immediately sell/trade-in the BMW and buy a new vehicle, 3) wait some period of time, then sell/trade-in the BMW and buy a new vehicle. I calculated each scenario in a spreadsheet as the total cost over a given time frame, five years in this case. These calculations have a few obvious variables, e.g. the length of the lease, cost of new vehicle, and financing of the new vehicle. In my case, I had a three year lease, I wanted a basic Toyota Tacoma to replace the BMW, which cost about $17,000 at the time, and I was going to finance the truck for three years. My spreadsheets are long gone at this point. Unfortunately, this all happened before I created my digital file cabinet archive and enacted an automatic data backup solution. However the mechanics of the spreadsheets are pretty easy to remember.

Scenario One, continuing the lease full term, basically meant do nothing. The lease would expire in a little over two years. At the end of the lease I would buy the truck, so the cost of the truck is included in the five year cost. The total cost for this scenario was $29,716.

(Remaining BMW Payments * Payment) +
Truck Down Payment +
All Truck Payments = Total Payment

(28 * $469) +
$1,500 +
(36 * $419) = $29,716

Scenario Two, get rid of the BMW immediately, would appear to be costly since it meant taking a loss on the BMW. The Toyota dealership offered me $3000-$4000 less than my lease buy out figure. Which was in the neighborhood of $29,000. The total cost for this scenario was .

Loss on BMW + 
Truck Down Payment + 
All Truck Payments = Total Payment

$3,500 +
$1,500 +
(36 * $419) = $20,084

Scenario Three, wait awhile, then get rid of the BMW, was a compromise. The same as scenario two only it assumed that I might have to wait to save up money to absorb the loss. This calculation assumes a six month delay before proceeding.

(Extra BMW Payments * Payment) +
Loss on BWM +
Truck Down Payment +
All Truck Payments = Total Payment

(6 * $469) +
$3,500 +
$1,500 +
(36 * $419) = $22,898

The numbers were clear. I had to get rid of the BMW immediately. Every month that I waited I was pouring more money down the drain. This scenario meant that I had to cover the loss on the BMW. This was a short term set back that made sense in the context of the bigger picture. By just looking at the numbers, and ignoring the intrinsic value of driving a nice car, it is easy to see that I just could not afford the BMW.

This is how I arrived at making my best financial move ever. I terminated my lease early. I accepted my losses and took the next step. Since then, I have made bigger financial moves, but this was different because it was the catalyst that changed my financial trajectory. If you are considering leasing a car or are stuck in a lease, I hope my experience helps you in your decision making processes. There are not very many valid reasons to consider leasing a car, other than wanting to drive a car that you cannot afford.