I really like the 20/4/10 system for buying a car. This puts me at a 25k car for my income and budget.
Does the leasing community have a similar method?
For reference:
20% down
4 year loan
10% of your monthly income per monthly payment
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I’m assuming this is a financing metric because of the money down and years.
What is the general rule of thumb on leases?
Yes.
0% down
No more than whatever the warranty period is
Literally as close to 0% as you can get and still have the car meet your objective needs and subjective desires.
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Paying 10% monthly on just a car payment for people making under 100k sounds like a terrible idea. Factor in gas and insurance.
It’s all relative based on what other liabilities you have though. I used to make 75k/year and split a $1000 apartment with a roommate. I had a clk500 then that cost more then my rent. Now I have a family to support and a $3500 house payment so my priorities have shifted. I can def afford the 10% car but have no need for it. I’d rather buy a classic or something else that won’t depreciate as I prefer investing these days over vanity.
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Why do you like that method? With the current cost of financing, how does that turn into a fiscally prudent use of your money?
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Agreed with almost nothing down on a lease like described.
Our families two cars combined are about 5% of our pre tax monthly income, with about zero down (MSDs, taxes and fees on the lease and 15% on the finance).
As others mention what you can and choose to afford is up to you. When I was young and single a big car payment didn’t hurt me as much. Now that I’m older that money is better spent on investments and savings. I’m driving a 10 year old M3 which gives me more enjoyment than a brand new car and we have a new X5 for family hauling.
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What that basically means is buying a car that costs approximately 50% of your annual income. Which is probably ok, but I’d probably err on the side of more conservative. I’d definitely go the 0% down and if that’s a monthly budget issue, I’d bring down the budget to the 40% mark.
As it pertains to leasing, as others have said, along with 0% down, I’d probably scale down the monthly % maybe to 3/4th or 2/3rds.
And @carpebble …please remember that MSRP is not necessarily related to the monthly payment.
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There’s no way you’ll get a consensus on this because people’s budgets and priorities vary so much.
Let’s say you put nothing down on a 3-year lease and pay $0 DAS and drive away with a “comfortable” $600 payment.
You just spent more than $20,000.
That’s the number you need to be okay with, because 3 years later that’s how much you haven’t saved or invested or paid toward the 2018 Disney vacation that’s largely still sitting on your Capital One card accruing interest at 27.99% APR.
And by using you and your, I’m not directing this at you specifically. 
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No, because it would be stupid to come up with a “method” that doesn’t look at assets and liabilities.
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There is no “method” or equation. What I think a reasonable payment is for me will not be reasonable for someone else. There are people that drive more expensive cars than they can afford and don’t pay their mortgage. Then there are people that make a ton of money and drive a Honda, no rhyme or reason to it.
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Here’s how I would change it: 10% cash ready for the due at signing + MSDs if available (ideally 10% MSDs, 0 due at signing)
3 year lease
6% of monthly income for monthly
In this case, you are buying a car over 4 years. At the end of 4 years, it will be worth 40% of MSRP, which is the equity you expect to have. With a lease, you expect 0 equity at the end of the lease. I would reduce the monthly payment by ~40% to account for the lack of equity. Maybe that number is 30% because of the expected returns of the difference you would invest to replicate the deal.
Then the logic switches to downpayment. With leases, no need for downpayments as gap is embedded into the lease and you aren’t trying to gain equity in the car. Refundable security deposits are quite helpful as they reduce the interest rate and can have a 10% annual return if you consider the reduced interest rates as a return. Paying for taxes and fees at signing is considered good practice and a good measure of your ability to save so having a budget requirement for that to measure your ability to lease a car responsibly is good.
I have no idea what you’re trying to say here. The best reason to pay any taxes/fees up front is if they’re either fees that get taxed a second time if they’re capitalized or if the mf is so high that the risk/reward justifies paying them up front. There’s no signaling to the world that you’re good at saving or anything like that going on.
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The initial rule of thumb was to force a person to constrain themselves by how much they had in the bank now, a small portion of their budget monthly and a shorter term. Leases aren’t lower cost in exchange for longer terms so that’s not a concern. By constraining them to have 10% of the car purchase available at signing, it forces a similar discipline on the potential follower. All over the marketplace, I see 3-10% of MSRP as MSD on deals with 4-5% due as signing to pay the initiation fees/nothing down (registration fee, bank fee, doc fee, dealer fee) so my 10% total cash available isn’t out of whack with the norms of deals combined with the OP’s system of only buying when cash is available.
The problem there is if someone only has 10% of the total cash available, they have absolutely no business leasing the car in the first place. If they’re in a position where they’re in a solid place to lease the car, there’s little reason for them to apply the 10% cash, except for in a few corner cases.
It’s an American Express and will have Disney paid off by the time they get in college.
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This means absolutely nothing. If I can get a MF of 0.0001, I would be losing money by putting anything upfront. Furthermore, BEST practice for drive offs, if you have an unfavorable MF, is putting them on a rewards credit card with a sign-up bonus and paying it off immediately - usually 60k miles + points from the transaction. Why anyone would use cash when they don’t have to is beyond me.
You’re still not rolling the fees into the lease in your credit card scenario, you’re paying them upfront.
I think the premise was that you shouldn’t lease a car if you don’t have any money saved, which I agree with.
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I’m not disagreeing with that sentiment. I’m just saying that instead of just laying out 2k up front in cash for drive offs you should take the opportunity to get some of that money back in either cash or travel credit or do a 0 drive off if the MF is low enough.
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I would invest with that 20% down you would pay towards the car that is only to depreciate in value