Saving For Your Big Purchase
By Doug Nordman, author of "The Military Guide to Financial Independence and Retirement" and founder of The-Military-Guide.com
When you start your career, you'll find plenty of advice on handling your money. Thousands of personal finance sites will press upon you to create your first budget, set aside an emergency fund, pay off your debt, and build your investments. Even the media tells you to save for retirement. But how can you do that when you have a life to live right now?
Once you set up the basic finances, then what about that new car, or a house, or that big trip? Not to worry: everyone finds their own path to financial independence. A high savings rate might get you there faster, but you also have to enjoy the journey. You might decide to live frugally, but that doesn’t mean depriving yourself. Just like saving for retirement and other routine expenses, you'll use your same financial skills to save for those big purchases.
Before you spend a big chunk of your net worth on something, ask yourself these questions:
- Do you really want/need that big high-priced item? How many months are you willing to work and save for it? Will it truly improve your life, or do you just feel social pressure to keep up with your friends?
- What's the least you need? Do you want a McMansion or a townhouse? A 5,000-pound SUV or a hatchback? A blowout week at a luxury resort or a month of backpacking through the mountains?
- What's the cost of ownership? Do you want to be a homeowner who's responsible for maintenance and repairs? Do you want to pay property taxes and insurance? Or would you rather rent from a landlord so that you can move every few years where your career takes you? Do you want a brand-new heavy truck with low gas mileage and a bunch of expensive features, or do you want an older model with fewer accessories and higher fuel efficiency?
- Do you have to buy it new? You're happy to pay for quality, but "new" usually means full retail price. What features are truly essential for you? What are you willing to pay for? Can you find a house with a short sale or a foreclosure? Can you buy a car from a closeout sale? Can you use a buying service to negotiate the price or the realtor's fees? What about Craigslist or eBay? Maybe it's worth buying new for the manufacturer's warranty, but you could also buy a third-party warranty to cover any surprises over the next few years.
- And finally, do you need it right now? After you've researched your purchase and test-driven a few models, give yourself a time-out for a few days. Let your emotions cool off and think about the pros and cons. For travel or vacation, consider whether you could get a better price at another time of year, or find a bargain airfare. Do you want to party with the holiday crowds, or enjoy a quiet shoulder season? When you're considering a home or a vehicle, can you wait until it's on sale at a slow time of the year? Imagine getting up the next morning and taking care of it, or contemplate how you'd handle the maintenance expenses.
Ask those questions for every major purchase. Live the life that you're willing to work for. You will reach your financial independence, but you'll also enjoy yourself. When you figure out the answers to your questions, you'll know whether it's the right decision at the right time.