Should I Finance Or Pay Cash For A New Car Build Affordability in Your Spending Decision Process: Part 1 of 2

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Build Affordability in Your Spending Decision Process: Part 1 of 2

I hear the repeated statements of the federal government in response to the serious, ongoing, housing crisis in the United States, reflecting on my meaning. Affordable. This basic idea seems to be ignored by the government. Clearly, people seem determined to keep the homes they bought before the recession, regardless of their financial situation—an approach that creates false hope, and inevitably leads to disappointment.

As the government fails to set affordable standards, its spill appeals to public sentiment and pits people against financial institutions. To be sure, before, during, and after the current recession, many financial institutions operated unethically in their dealings with homeowners. Still, every homeowner decided to buy his home, many took out sub-prime loans. Sadly, some have, and others may have to leave their homes because they can’t keep them. This leads to three questions:

  1. What is affordability?
  2. Who decides affordability?
  3. What should people do who live in houses they can’t afford?

Affordable

I suggest that the main goal of every household is to live a debt-free lifestyle. In this context, what is affordability? I think we should answer this question separately for purchases other than a private home and buying a private home.

For purchases other than a single-person home, affordable vehicles…

Ability to pay for items and not take on debt, and not compromise current and projected household budgets, plans and commitments.

A cheap way to buy a home…

Ability to purchase a home with or without a mortgage, so that the total estimated running costs do not compromise current and projected household budgets, plans and commitments.

I believe that a man should not borrow to buy anything other than his house. Accordingly, except for your home, which I deal with in part two, you cannot afford to buy an item if you have to borrow to get it! Use a credit card to buy a vehicle, refrigerator, stove, or other consumer goods and pay the full balance in cash.

Pay cash for your personal vehicle

Pay cash for personal transportation? Yes, save to buy cars, vans and other personal transportation. These are not investments that go up in value – they constantly lose value. You may have to start with a cheaper vehicle while you save for the ideal one. If available and convenient, use public transportation during the week, and rent as needed on weekends, while you save. Be creative, explore non-loan options to achieve your goals of debt-freedom with regular, convenient, and reliable access to transportation.

You need to start saving regularly to buy your first vehicle early; Continue saving to replace it, and repeat this process. Monthly, set aside a car payment in your personal designated savings account–learn to be disciplined and don’t neglect it.

Pay cash for other non-residential purchases

What about purchases other than your personal vehicle and private residence? The same principle applies. Are there any consumer goods worth getting into debt? I don’t think so. Furniture? Tools? Vacation? Big toys? They can wait! The key is to learn to define wants and needs so that when items break or wear out, you don’t automatically think about replacing them. If the fridge breaks and you can’t use it, instead of making the instinctive decision to use your credit card to replace it, while you save up to buy another fridge, look into options for keeping food cold and refrigerated. Seek temporary help from your neighborhood, church, Bible study, or other group. You need patience and humility… a lot!

Save systematically to buy, replace, and upgrade your transportation, furniture, appliances, and all purchases outside of the operating budget; Always save regularly for these specific items.

At least annually, budget for potential purchases, other than your private residence, with personal values ​​greater than $100 (or any other amount you decide), and with lives of two years or more. For each item, estimate the following:

  1. Today’s value of the item’s probable replacement cost ($12000)
  2. How long before you can replace the item (6 years)
  3. Annual amount to save: Divide one by two, and divide the result by 12 for the monthly amount to save ($2000 and $167)

Remember, for purchases other than your home, affordable vehicles Ability to pay for items and not take on debt, and not compromise current and projected household budgets, plans and commitments.

Understanding compound interest applied to loans, and knowing how much you’ll spend in interest on non-mortgage loans, can motivate you to focus on affordability before spending!

In part two, I examine affordability and purchasing a private residence; Before answering the remaining two questions, what does it mean to compromise on budgets, plans and commitments?

  1. Who decides affordability?
  2. What should people do who live in houses they can’t afford?

Copyright (c) 2011, Michel A. Bell

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