Is Your Car Lease Payment Bigger Than Your RRSP Deposit?

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As individuals in modern society, it’s becoming increasingly hard to resist purchasing the new “it” item or the latest gadgets and technology.

For example, with the release of the new iPhone 6, the masses are lining up to purchase this device that probably costs more than what a lot of graduates earn on a single paycheque. 

Most people’s, if not everyone’s, goals for the most part are to obtain a high-paying job that will then allow them to purchase the luxuries that they’ve always dreamt of.

For example, a sporty car that you just saw drive past you may be the dream car you’ve been yearning for.

It’s easy to forget about the long-term goals and focus on the short-term goals that give you instant pleasure. Would you rather get that fancy car or use that money to save for your RRSP? 

This is a tough question for many youngsters out there. Of course, you want to be seen in that new flashy car, but is it worth it?

Here’s what one of our good friends and Certified Personal Finance expert Cory had to say:

Leasing versus Saving

What about leasing that car? Would you be willing to pay a lease that is far greater than your RRSP deposits?

If you already have a car lease payment that is greater than your RRSP, then it’s probably time to rethink your goals and priorities.

However, it’s becoming easy for consumers to obtain luxury items in today’s market, especially cars — expensive ones. 

Barnowski Financial tweets us this:

It’s always better to think about your future.

It’s always reassuring to know that you have enough savings for a comfortable future rather than scrambling your way to make ends meet when you have that lease payment going on for your new car and saving for your RRSP at the same time.

RRSPs And Affordability

However, contributing to an RRSP may be a struggle for some Canadians, as they may not have enough funds.

The Globe and Mail states, “Forty-three per cent of respondents to a poll conducted for Bank of Montreal said they intend to make a contribution to their RRSP by this year’s March 3 deadline, down from 50 per cent last year”.

They go on to state the reason why Canadian’s are not contributing enough:

• Short of the cash needed to make a contribution – 37 per cent
• Other expenses that take precedence – 33 per cent
• Putting a priority on other investments – 11 per cent

Even though putting a priority on other investments is at the end of the list, it’s rather a common mistake.

Kevin Cahill, Founder of Canadian Legacy Builder, tweets us this:

Relationships with people you know can easily become strained when things go awry in terms of financial stability. Without having a plan, personal relationships can most definitely be affected. 

Debt versus an RRSP

Another common problem is the amount of debt Canadians have. Acquiring debt and trying to pay for an RRSP might prove to be difficult, as the Toronto
states, “But Canadians have also been warned by Bank of Canada governor Mark Carney that average household debt levels are at record high levels.”

Whether it be financing a new car to buying a new house, debt is debt and it can affect your ability to save for your retirement.

Picturing The Future

Sometimes it’s difficult to picture a time that is so far away from the present — like predicting what your life will be like once you retire.

Gordon Powers from MSN Money believes that leasing a car is expensive: “When you lease a car, you have to return it at the end of the lease or buy it from the dealer at a predetermined price (the residual value) — which is often higher than what you’d pay for a similar used car. Keep in mind that a vehicle loses the largest percentage of its value in the first three years.”

So, what would you rather do? Lease that car or instead put that cash into your savings? Yes, a tough decision indeed, but you must choose.

We always suggest that people should think in terms of long-term instead of short-term goals. The long term will give you peace of mind and happiness to last.

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