House or A Car – Which Should We Buy First?
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I hate spending money; even when we have the funds saved for a purchase. I suppose a lot of it goes back to how tight things were financially when I was paying off debt. I had very little to spare, and every last dollar I could get my hands on went to kill my debt.
Fast forward to today, I’m not making the same financial mistakes I was guilty of in my younger years, but I do deal with paralysis by analysis when it comes to spending money.
The current situation we’re facing as a family is whether we should buy a new to us car or a new house first. The fact that they’re such major purchases means I’ve been analyzing the numbers even more and probably not viewing it the most objectively. I know we’re not the first ones, by any stretch, to deal with two competing needs at the same time – especially when it comes to finances.
Our Current Situation
Thanks to business growth, we’ve been able to save a significant amount of income this year. We’ve maxed out our Roth IRAs, we’ll be maxing out at least the employee side of our Solo 401(k)s (more on that shift in an upcoming post) and will be maxing our HSA soon as well.
This is all in addition to the funds we’re putting in our savings account. We use a high-yield savings account, like Synchrony Bank – who has no minimum balance requirement and pays 1.55% so it’s growing for us.
Aside from our mortgage, we have no debt and are focusing on saving as much as we can and investing in our business to make it grow more.
One of our main goals this year was to save half of what we’d need to buy a new to us car by the end of 2016 in all cash. I’m excited to say that halfway through the year, we’re on track to accelerate that plan, and look to be able to buy a new car by the end of this year and still allow us to meet all of our financial goals. While it’s exciting to be able to do this, it doesn’t seem as cut and dry anymore.
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The Case for A New Car
As many readers know, the little Frugal Rules’ are growing – and fast. Who would’ve thought kids would grow? I know, but they do. Unfortunately, our current car situation isn’t very conducive to their growth.
We have a relatively fuel efficient Altima and a P.O.S. Kia Amanti that was given to us as a gift. We really don’t drive the Amanti, because well…it’s a boat! We’ve toyed with becoming a one-car family to get a little more cash to throw at the car purchase, but have held off until we’re ready to buy the car.
All that being said, we’re near maxing the capacity of the Altima. While it’s great to drive, having the three little ones stuffed in the back usually involves the driver getting a pretty nice back massage and is not too terribly enjoyable for the kiddos either.
We can always take both cars when we need to, but for a variety of reasons that really isn’t desirable. Thus, we have a relative ‘need’ to buy a new to us car.
The Case for a House
As Mrs. Frugal Rules and I started discussing more seriously buying a car this year we began considering if using such a big chunk of funds on a “new” car was the wisest use of our hard earned money.
The amount of money we’re looking at for a new car would provide us a significant seed to get to at least 20 percent for a down payment on a new house. This is where the over analysis began in my opinion.
Remember those growing kids I mentioned? Well, you deal with the same thing in a house too. We didn’t think we’d be able to start on it this year, but we’ve begun putting aside a small bit of money this year for a new house purchase.
If we combined these funds with what we currently have for the car it looks like we’d be at the 20 percent amount needed within a year as opposed to another few years.
Given the fact that interest rates have to go up at some point in the near future and house sales are relatively quick here in Omaha, plus the fact that we’d be looking at moving in the next few years anyway, started me thinking it’d be wiser to look at a house first.
If we went with the plan to buy a house first, we’d still continue saving each month for a new car, but the major focus would be on saving for a house – thus putting off the new car for several more years. I don’t know if this is really desirable or practical.
Growing kids aside, we also generally rent a larger car for family vacations so it’s more enjoyable for everyone, so that’d be an added expense we’d continue to face for another few years. That being said, we wouldn’t be buying a car until having the cash necessary to buy in full as a car payment is simply not an option we’re willing to pursue.
So, I turn it over to you. Have you faced this, or a very similar situation, in the past? If so, which route did you take? What am I missing or overlooking in this decision? What do you do when you have two relatively equal needs you have to decide between?
Additional resource: If you’re in a similar situation trying to determine which major need to tackle first, but have debt holding you back you need to pursue options to kill the debt quicker. The best option is to consolidate outstanding debt to a lower interest rate. The lower your rate the quicker you become debt free. One of the best options to consolidate debt is through Lightstream who offers rates as low as 1.74 percent with AutoPay.
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