House or A Car – Which Should We Buy First?

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A house or a car - which should we buy first. Both are relative needs but can't get both at once. Which would you want to replace first - house or car?

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.

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.

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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.

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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.

*Related: Not certain if you should buy or lease? Check out our leasing vs. buying a car guide to learn which is best for you.*

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.

A house or a car - which should we buy first. Both are relative needs but can't get both at once. Which would you want to replace first - house or car?

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?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • MyMoneyDesign says:

    Sign me up for the new-used car. With two kids its really tough not to have a decent sized vehicle. Plus it sounds like between the two the car problems seem to be more of the thorn in your side.

    • John Schmoll says:

      Yea, we’ve got three little ones which does make me want to go the car route. It is a thorn, but we spend a lot of time in our house so I’m leaning heavily towards that option.

  • Kim@Eyesonthedollar says:

    We aren’t looking for a house right now, but did have to buy a car earlier in the year because we decided to give our Altima to my mother-in-law. I’m still convinced it was 100% the right thing to do, but I’ll admit, I was more than a little upset to see that amount of money go out the door.

    I think it’s almost like some sort of a condition when you can’t spend money you earned and enjoy it, even if you can afford it and need to. It was fun to buy a car with cash though. They even let us put $3500 on a credit card so we could hit a spending bonus for points. I’d go with the car first. The house will take much longer and your kids aren’t going to get smaller.

    • John Schmoll says:

      Very true Kim. We’ve used a card as well to pay towards a car to get points. The car is tempting to go with as it’s more of a nuisance than anything but we spend so little time in it compared to the house.

  • Catherine says:

    Without knowing your entire situation, I’m inclined to say house given that it’s where you’ll spend more time. Also who knows where buisness growth will be bu end of year and you may be able to get both? Could you afford the 20% down plus selling your current cars for one larger vehicle?

    • John Schmoll says:

      That’s my exact thought Catherine. We spend SO much time at home right now that it only makes sense, on many levels, to go that route. I don’t know that we’d be able to get a car as well this year but believe we’d likely be able to get there within the next 18-24 months. That’s assuming things continue to go the way they have been lately. πŸ™‚

  • Holly@ClubThrifty says:

    I’m not a car person at all. I would much rather upgrade to a house with more room. That’s my two cents!

  • Robin @ The Thrifty Peach says:

    I would try to sell both cars to buy one decent used car and become a one car family, hopefully saving the amount you’ve already saved for the car, or at least most of it. Then maybe you’d get the best of both worlds by having a newer car and being closer to buying a new home.

    • John Schmoll says:

      That is a good idea, and one we’ve thought of somewhat. We’re wanting to keep the Altima though as it gets really good gas mileage and have plans to give it to our oldest when she’s able to drive.

  • Sarah says:

    I vote house! Only because that’s where the majority of your time is spent and I’ve heard interest rates will be going up soon. Since you’re buying a car cash, you don’t need to worry about rising interest rates with that purchase.

    Maybe get the kids involved and ask what they would prefer? More space at home or a roomier vehicle?

    Great post!!

    • John Schmoll says:

      You’re exactly right Sarah. Rates will go up at some point and we spend so much time here as it is.

      Good point, though I fear they’d say both lol. πŸ™‚

  • DC @ Young Adult Money says:

    Hey John we actually took a route that probably wasn’t the best. We had two aging cars but still bought a house before setting aside money or getting more reliable cars. It ended up working out but we do have car loans. I like the idea of getting exposure to real estate, though, and the first few years of a mortgage kind of suck anyway as most of the payment is going to wards interest. Most bloggers would not have agreed with the route we took (and heck, I don’t even think I’d recommend it) but it’s been nice building some equity and putting effort into improving the home. Not to mention the benefit of becoming a landlord and lessons learned from that.

    • John Schmoll says:

      We actually just started discussing the possibility this weekend of not selling our current house but keeping it to rent out. I don’t know if we’ll do it or be the wisest thing to do but it has us thinking.

  • Carolyn says:

    House first … It’s a buyer’s market , now is the time to start looking -you usually need a few months to find what you want (need) . do not settle for that’s okay – find that house that fills both of your wishes ! My husband and I bought him a new car ,six weeks later totalled and we didn’t even get close to amount from insurance that we had put down for down payment ! Start with a wish list for your house and then add every detail that is important to you ! Drive a pos for a while longer -you will be amazed how you learn to juggle money once you get a house !

    • John Schmoll says:

      You pretty much summed up where our thinking has gone on this Carolyn. I hate dealing with the POS car, but it’s a temporary situation we can put up with longer as a means to get towards something that’ll be better for us in the long run.

  • ann says:

    I’d trade in the two cars for a reliable larger used car and upgrade my house. The house should be in the best school district or you hopefully have saved enough money for a private school.
    Always make at least 13 payments a year on your mortgage; really shortens the length/amount you are paying in the end for your home. Buy only
    the house you need in the best neighborhood, not one to impress the Joneses.

    • John Schmoll says:

      Thankfully Omaha has an open school district so we can get the kids in anywhere we want – relatively speaking. That being said, great point on the payments. We’re planning on a 15 year mortgage with designs on killing it in 10 or less.

  • Stefanie @ The Broke and Beautiful Life says:

    I’ve never bought either, but with my 30s on the horizon and thoughts of family, I’ve definitely been thinking about these big ticket purchases- even though they’re probably a good 5-7 years out. I think I’ll have to go for both at the same time as moving to the suburbs will require a vehicle.

  • Hannah says:

    Which one do you think will improve your quality of life the most when quality of life is prorated over the next 15 years? New car or new house?

    I would go with the answer to that question.

    If it were me, in your situation, I’m guessing the answer would be the car because you can send your kids outside to play, but you can’t just tell them to walk if they are annoying you in the car.

    • John Schmoll says:

      Ha ha, good point. I was actually speaking with a good friend of ours the other day and he went with the house option. Reason being, is if we were to wait maybe 4-5 years on a house then our oldest will only be a couple of years away from driving and thus spending less time at home. Her brother will only be 2 years behind that. So, his thinking was we’d get more time in a bigger to us house by buying now instead of waiting.

  • Mrs. Budgets says:

    I vote car first. Buying a house will surely have unforseen expenses.

    • John Schmoll says:

      Most definitely – though we have a nice sized account to cover much that’d be associated with that.

  • Natalie @ Financegirl says:

    This is tough if you actually need both equally. In theory, the house will appreciate in value and the car will depreciate. So, from a financial standpoint, the house is the better asset. But that does not change the fact that you have a growing family! I think you’re being very smart about it and considering all options. Eventually, you’ll have to make the call. πŸ™‚

    • John Schmoll says:

      That’s exactly what I’m thinking Natalie. The car will do nothing for us financially, while in theory the house will. That’s also not to mention the pure reduction in stress level from not being on top of each other most of the day. πŸ™‚

  • Vicky says:

    I would go with the car. As soon as you get a house there will be maintenance costs, decorating, furniture etc that will slow down saving for a new car. In my experience, you will spend between 3% and 5% of your original house purchase price per year on maintenance (planned and unplanned ) and upgrades/decorating/organizing. Given that, how long will it take you to save up for a car again? Do you really want to wait that long?

    • John Schmoll says:

      That is a very good point Vicky. That being said, I believe putting off the house purchase will likely put us in a less desirable situation. Based off what our business is currently doing I’d suppose it’d take us 2 years to save up to buy a car in cash.

  • Kayla @ Add-Vodka says:

    That’s a tough choice John. If it were me, I think I’d opt for the house as you already said you usually rent a car for longer trips anyway. It might be slightly uncomfortable, but if you are only going across town it’s not for too long to be cramped in a car. If you are cramped in your house it’s a much longer span of time.

    • John Schmoll says:

      You’re exactly right Kayla. Putting up with a cramped car is a momentary situation – the cramped house…not so much. πŸ™‚

  • Shannon @ The Heavy Purse says:

    Tough call, John! I lean a bit towards the home because you both work from there, so it’s a place that you really, truly use nonstop. πŸ™‚ On the flip side, it would also depend on whether you think your vehicle will last until you can afford to replace it. The other option, and likely your least favorite, is to divert some of your savings/investing into a vehicle and use your current car fund as a downpayment. Obviously, this would also depend on whether you would remain on track to reach goals if you don’t fully fund your solo 401k this year, for example.

    • John Schmoll says:

      It is definitely a tough call Shannon. It also has to be kept in mind with our ability to continue to fund our Solos, as well as reaching other goals this year.

  • Brian @ Luke1428 says:

    Tough dilemma…I remember those crowded vehicles.

    I’d vote house first for the asset appreciation…then sell both cars to get into something cheaper than what you may be looking at now. Then continue to save some more each month so you can upgrade in car in another couple of years. You could do that multiple times…kind of like a car purchasing snowball…and be in something really nice in 6-8 years. Lots of work and patience yes but better than taking out a loan to buy a 30k vehicle.

    I know you said you wanted to save one car for your oldest but by piecing together your various comments that seemed like it might be 7+ years away. I’d not hang onto a car for that long just to give it to my child. Too much can happen in that length of time.

    • John Schmoll says:

      Yep, crowded vehicles aren’t the most fun.

      I’ve heard of the car snowball method, for lack of a better term, before and is one we just might look at. We’re far more ahead of where we thought we’d be at this point in the year and want to be able to harness that towards a house.

      I see your point on that. The thing is the car still runs great and has only 65kish miles on it anyway. We’d likely be holding on to the car that long anyway as a result. But, who knows.

  • Mark@BareBudgetGuy says:

    After all the house repairs we’ve had lately, my vote is rent!

  • Jayson @ Monster Piggy Bank says:

    That’s a tough decision to make, John. Based on experience, I bought a house first because this was what we needed the most. That being said, the answer to this question is dependent on our needs.

  • Tre says:

    Your kids are still young & growing so the size of your car is probably the more urgent issue.

  • Shannon @ Financially Blonde says:

    We just got a recent home value analysis done and seeing as how our home has gone up 10% since we purchased it and knowing our cars have gone down more than 10% in value since purchasing them, I am in favor of focusing on the home. Another thought is that you have a number of different options where the cars are concerned, but you may not always have the interest rates you do where homes are concerned.

  • Margaret Clark says:

    Even though I’m big on a nice living space, I was in a horrific auto accident when an uninsured driver lost his brakes and flew into me while I was sitting at a red light. I have to have a good, relatively new vehicle. The safety features are mind boggling. Even if you are the most careful driver in the world, you can’t control other people. I know an elderly person who bought a new Honda with all kinds of standard sensing monitors, and even an automatic braking system if he starts to re-end someone! That, along, with the person who said he could get rewards from a credit card purchase, makes a car the overwhelming choice for me. Just a quick comment about the house. As a single woman, I’m VERY sorry I bought one and did not consider the time and expense to maintain the home and yard–to say nothing of the new AC, furnaces, etc. I had to buy while living there for 20 years. Now I am thrilled to be in a desert condo, with beautiful flowering bushes, a great AC and NO yard work!! Houses are so very expensive. Finally, consider the property taxes where you live.

    • John Schmoll says:

      All great points Margaret, you definitely do need to do your due diligence before making a decision like this.

  • Margaret says:

    I am a Single mom who had to buy both at the same time. I made the car payments and bought a home on a small income with a $40,000 down payment.
    I needed both reliable transportation to make money to pay bills and a home to put a roof over my head and put money in my own pocket! Good luck

  • Josh says:

    So glad I found this blog post. My wife and I are expecting our second child and have been looking for a house for a little bit now. We have no debt except for the house. Reason for the move would be more space for a growing family. Our quandry is that I barely fit in either of our cars without having my knees jammed up into the dashboard with a car seat behind it. We have about $7000 available to put into a minivan but minivans are sooo expensive and the thought of buying a car with 100,000 plus miles for 7k plus makes me sick. Then there is thr current housing market. Interest rates have to go up at some point but to get into a house we want to live in would be stretching us a bit. Thoughts? And what did you guys end up doing?

    • John Schmoll says:

      Glad you found it helpful Josh. We went back and forth and ended up buying a house – we just moved in about two months ago. At the end of the day we viewed it as the longer we put off a house the less time we’ll have to actually have the benefit of the extra space for our family. We too hated the idea of sinking money into a car with high mileage and a loan wasn’t an option for us. Now that we’re in a house we’re focusing on growing our car fund so we can buy outright in the next couple of years. All that being said, I can empathize – I’m a bigger guy myself but we spend so little time in our car that it just made sense to go the house route first.

      • Josh says:

        We are not quite the opposite but both my wife and I work about 30 minutes from home and there is a lot of time that is spent transporting children to daycare (thankfully its family) which is 30 minutes the opposite direction. Our house is okay, its just a little small and the kitchen is a challenge. The bigger issue is the school district we are in and trying to predict the future (impossible). I noticed reading through the comments that there really is no CORRECT answer on what to do. It is purely circumstantial and based on what each individual needs and values more. Right now we are leaning more towards a car first simply because I literally won’t fit in our current setup. At least not safe or comfortably. We can make the house work for us and it will probably benefit us to to continue to slim down our possessions and live more simply.

        • John Schmoll says:

          Ah, yea, I can totally see your thinking and I’d likely make the same decision. That being said, I think you’re completely right – there’s no real “correct” way to go in a situation like this. There’s so much that can go into a situation like this that the personal circumstances in play should dictate what route to take. Though, I think that can make it a bit more of a difficult decision at times.

  • Mercy Gibbs says:

    So what did you and your wife decide?

    • John Schmoll says:

      We went with the house first, over a car. We figure we spend considerably more time in our home so it makes sense to enjoy that sooner and for longer. We’re looking to get a larger car within the next 6-12 months.

  • John smith says:

    I’m fighting some of the same battle… I understand not wanting the payments, but if you own your own business, couldn’t you purchase a vehicle with your business account and get a tax break at the end of the year???

    • John Schmoll says:

      Good question John. You can only deduct interest related to a loan – IF you can prove the car is needed for the purpose of a business. We work from home so it wouldn’t work.

  • Colby Capps says:

    I’ve considered the same predicament and come to a financial conclusion that buying a home first is the more frugal decision. Maybe I’m not considering everything or my thinking is off, but here’s my thoughts.

    Where I live, a decent house is $300,000. So if you were sitting on a 20% down payment and considered buying a $60,000 car(I know, crazy, but it’s just an example) you would save in the long run by buying a house and financing the car, or waiting until you can pay cash.

    adding a down payment of $60K will reduce your total interest paid on your mortgage by $43,172 over 30 years. If you bought the car at the same time and financed the whole thing, you’d pay $5,072 in interest over 5 years.

    Looked at in another way, paying cash for your car saves you $5K while using that money as a down payment saves you the price reduction in interest minus the vehicle interest, or $38,100 not considering the Time Value of money.

    • John Schmoll says:

      I like your thoughts Colby and would tend to agree. We went the house first route as well – so we could enjoy it longer and made sense to buy that first knowing rates were super low and were planning to buy our car in cash.

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