Does it hurt us in the long run if we finance our cars, homes, furniture, education, and even music?

With so much pressure and competition these days, many of us end up working to make a living instead of a life. We go to school to get the highest paying job, make the most money, and spend all the money we have just to keep up. Despite each promotion and raise, we live beyond our means. Making monthly payments on our belongings instead of owning them outright may contribute to this phenomenon.

While some people take out loans because they truly need to, others choose to take out loans for things like education, homes, cars, and music because they want the best, and they want it now. Still others believe that the more they have (no matter how they pay for it), the more affluent they are. But there may be an issue with that mentality. Do we have property rights to our stuff no matter how we pay for it?

Property rights usually relate to law. Investopedia says property rights “refer to the theoretical and legal ownership of specific property by individuals and the ability to determine how such property is used”. If someone buys a used car with cash, they own it and therefore have the rights to that piece of property. However, those who choose to take out a loan to purchase a used car are essentially forgoing their property rights in the short term because they want to drive that car right now. If we constantly give up our property rights by financing things, our affluence can suffer. Think about it. If someone’s goal is to become wealthy, how are they going to get there if they’re constantly “subsidizing” purchases with monthly payments?

Meet Mr. & Mrs. Jones

Here’s a hypothetical example to show you what I mean. Meet the Joneses. Everyone knows them, and lots of people are trying to keep up with them. Mr. and Mrs. Jones recently graduated college, got married and are in the market for a place to live. They want a small place downtown. They don’t want to commit to buying a home yet because it takes too long to save for a down payment, so they look for a place to rent.

Let’s imagine that the rental unit that satisfies all of their required amenities costs $1,800 per month (up from the $1,000 it would have cost them two years ago due to increasing real estate values). In order to cover their rent, the Joneses must earn $21,600 per year after taxes. This total doesn’t include a security deposit, renter’s insurance, or the $200 each month that they pay their neighbor to walk their new puppy Lola around the block.

The Joneses also need two cars so they can each get to work. Because they really value the technology and safety features of newer cars, they each decide to lease a new car. The current average 2017 lease payment is $410; double that to $820 for two vehicles, and the cost to lease both cars for a year is $9,840.

Altogether, the Joneses spend $31,440 of after-tax income every year on just their rent and cars.

The average starting salary of a 2017 college graduate is just under $50,000. If we double that and Uncle Sam keeps 30% of it, the Joneses have about $70,000 of after-tax income to fund their expenses. In this example, their rent and car expenses eat up almost half of their take-home income.

Keep in mind that the remaining 50% of their budget will go toward their utilities, car insurance, food, cable, etc. If they’re strict with their living expenses, they may find a small amount to save each month toward their financial goals. And since the Joneses chose to lease their cars and rent their apartment, they will have built zero equity in their home or cars when it’s time to move out or get new vehicles. Remember that thing about property rights? Even with nice cars and a nice apartment, they don’t actually own them and they’re not actually building wealth.

Meet Mr. & Mr. Smith

Now meet Mr. and Mr. Smith. They’re also recent college graduates, and both have new jobs. They’ve decided to rent a cheaper apartment than The Joneses; $1,200 per month compared to $1,800. They intentionally sought out a place that’s outside of the downtown area because one of their main financial goals is to buy a house. They want to save for a down payment. Their apartment isn’t as hip or expensive, but it only costs them $14,400 annually.

The Smiths make a different decision with their cars than the Joneses. They don’t really mind if they drive a car that isn’t new, so they set their sights on two used cars. Ironically, their used cars also end up carrying payments of $410 each. The Smiths understood that they weren’t going to be driving the latest and greatest vehicles, but they would own their cars after their payments are complete. Overall, the Smiths spend $24,240 of after tax income on their cars and home.

Using the same average salaries as the Joneses, the Smiths are spending about 35% of their after-tax income on their rent and cars. The Smiths will have to distribute the rest of their budget to their other living expenses just like the Joneses. But remember, since the Smiths are spending only 35% of their after-tax income on their apartment and cars, they’ll have more room to save for their financial goals. For this example, however, let’s ignore the other living expenses the Smiths and the Joneses will incur. Let’s assume the Smiths are able to save the same amount of money that the Joneses were spending, and let’s fast forward six years.

What’s the difference?

So let’s take a look at each couple from a financial perspective.


The Joneses

The Smiths




Combined Car Payments






As you can see, the Joneses have spent considerably more money over the time period than the Smiths. And the Joneses don’t own their cars. The Smiths will after they make their last payment. If the Smiths were able to save everything that the Joneses spent, they’d have about $43,000 saved for their down payment. That’s almost a 20% down payment on a $220,000 house or condo! Although the Joneses were able to live downtown and drive their newer cars for the past six years, they still aren’t prepared to buy a house or condo. They’ll most likely be looking to lease their second round of cars and rent a new apartment.

Owning vs. Renting

This example made it seem like a slam dunk to be like the Smiths, but on the other hand, it does make sense to rent in some circumstances. If you don’t know where you’ll find your next job or where you want to live for the next few years, buying a home may not make sense.

And we don’t have to make the rent vs. buy decisions just for the big ticket items like houses and cars. Let’s take a look at a smaller ticket item like buying music vs. renting.

In the example below, you can own most CDs in half a month to a month for what it costs to pay for streaming services. You can own the vinyl record in two to two and a half months. You’ll get more variety from a streaming service than owning the CD or Vinyl, but you’ll never own your music.

Classics like The Beatles, The Rolling Stones, U2, Prince and more, would be a nice sale or inheritance. Today’s digital equivalent doesn’t let buyers own their music.






U2 Joshua Tree

$9.99/month for ad-free music

$9.99/month for ad-free music



The Chainsmokers Do Not Open

$9.99/month for ad-free music

$9.99/month for ad-free music



Bruno Mars 24K Magic

$9.99/month for ad-free music

$9.99/month for ad-free music



And what about furniture? The table below lists items for a basic living room set-up. While small, monthly payments may be affordable from month-to-month, the difference to rent-to-own versus owning outright is can be more expensive.





3-Piece Sectional Sofa

$130.00 for 18 monthly payments = $2,340.00



3-Set Coffee Tables

$56.00 for 8 monthly payments = $448.00



55″ Curved TV

$152.00 for 19 monthly payments = $2,888.00



Unfortunately, there’s no clear cut answer as to whether renting or buying is always better. It all comes down to your personal financial situation and goals. However, think twice before you take on monthly payments for something you’ll essentially have to give back later. Nothing–no matter how shiny or new–is worth getting in the way of your goals.

Debt Free Guys

Read more stories from John Schneider and David Auten at

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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