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Are you looking for a financial advisor? There are many good ones out there. The best will attest that they help their clients save by making the right investment decisions based on the risks they are willing to take. Regardless, it’s still very difficult to evaluate a potential financial advisor.
That’s because most of them are no longer strictly independent. They typically work for reputable companies such as Raymond James, Vanguard and Northwestern Mutual. They get their research from corporate factories of economists and market analysts. They are told where to invest their clients’ money based on certain risk factors they assign to their clients. The reputable ones get paid by asset, so the more your portfolio grows, the more money they make. The branch is quite vanilla.
Related: 8 things to consider when choosing your financial advisor
However, everyone should have a financial advisor – especially if you own a business. That’s because there are too many financial decisions to be made that are probably beyond our expertise. But how do you make that choice? What is the best way to really determine if you are the right person or not?
For me it’s easy. I’m just doing a simple test. You should try too. Simply check with your financial advisor whether you own or lease your vehicle. If the answer is leasing, then here’s my advice: don’t use this financial advisor.
Why? Because leasing a vehicle is a pure black and white test of a person’s financial acumen. If the consultant owns the vehicle, then that consultant is financially smart. If the consultant is hiring, then you might want to move on. As simple as that.
Of course, leasing has its advantages. You get a brand new car every two to three years. You don’t have to worry about selling it one day. If you own a business, you can usually deduct the entire payment for a leased car provided it is used strictly for business purposes. In the long run, you can save on repairs and maintenance. But even with these benefits, the numbers don’t lie: when you lease a car, you’re spending far too much money in the long run.
To prove this, here are some numbers to look at over a 20-year period, using a very simplistic approach.
Let’s say you buy a new car for $40,000.
Using this calculator, and at today’s interest rates (nearly 10%!), 5% sales tax, and a three-year lease (assuming there’s no down payment), you’ll pay about $1,300 a month. This means that over a 20-year period, assuming no inflation or changes in interest rates, you would pay 240 months of lease payments totaling $312,000 with no additional financing charges or mileage charges.
But say you buy the car for $40,000. And let’s say you get a three-year bank loan, just like your lease. Using this calculator and the same assumptions above, your monthly payments would also be around $1,300. However, when the three years are up, the car will be yours. According to reports like this, the average lifespan of a new vehicle is around 150,000 miles or eight years. So that means you would be making 108 months of loan payments over a 20-year period, or about $140,000 in total.
That means you’ll pay about $172,000 more over the same period if you lease. Consider what you could earn with that amount if you invested it instead of handing it over to a leasing company.
It could be said that the longer you’ve had a car, the more your maintenance and repair costs will increase as it ages, and that’s true. But insurance costs are also falling. And if you own a car, you own an asset, and even a car with 150,000 miles has a resale value that would probably offset a good chunk of the additional maintenance costs you would incur. And if you’re buying the car for your business, you can take advantage of the accelerated depreciation rules and realize tax benefits much sooner than making lease payments over time.
For me, it’s a no-brainer that owning a vehicle makes far more financial sense than leasing, which brings me back to your financial advisor. I spoke to a financial adviser the other day who came to our meeting in a new BMW. I think the intention was to show how successful he is. And maybe he is. But after confirming that he actually leased this vehicle, I knew this wasn’t the guy for me.
I don’t want my financial advisor to drive a flashy leased car. I would like my financial advisor to drive an older vehicle that I own. And you too.