To Lease or To Buy? (Compound Interest)

In this activity you will decide if it is personally better for you to lease or buy a vehicle. You will need to decide what career you will want in the future before embarking on this adventure. Decide what you want to do in the future then use the link below to calculate the average earnings of that career in the area that you might want to live in the future. Use a salary average that would be for the first 5 years of your career. 

http://www.payscale.com/research/US/Country=United_States/Salary

Once you have found your yearly salary use the link below to figure out what you yearly salary after IRS taxes are withheld would be. You will need to estimate on the number of children you may have and if you choose to stay single or get married.

http://www.irs.gov/Individuals/IRS-Withholding-Calculator

Now that you know your yearly salary after taxes, divide that number by 12 to see how much money per month you will bring home. Record all of this information in your math journal in a table such as the one below. You will want to reference this information later.

Questions to Ask Yourself

1. Do you need to avoid making a large down payment?
2. Is the car you want to drive too expensive for your budget?
3. Do you need a very low monthly car payment?
4. Would you rather not deal with having to sell or trade in your car?
5. Do you prefer havng a new car every two or three years?
6. Is the concept of ownership important to you?
7. Do your driving habits result in a lot of wear and tear on your car?
8. Do you drive more than 12,000 to 15,000 miles each year?

Buying a Car

What is the MSRP of the car you'd like to buy?

How much money can you pay up front as a down payment? (Most are 5-10% of the MSRP)

How much time do you want to pay off your car? (1-6 years)

What is the interest rate for your car loan? (6-8% is average)

Leasing a Car

What is the MSRP of the car you'd like to lease?

What is the approximate reidual value of the car you'd like to lease? (luxury cars 60%, sports car 55%, sedan 50%, family van or pickup 40%)

How long with you lease your car? (1-3 years)