For the vast majority, the three largest purchases people make in their lives are buying a home, helping their children pay for college (or paying for it outright for themselves, the kids, or both), and purchasing cars (if you get two new cars — one for you and one for the spouse — every 10 years, the costs really add up.) Since your finances will be greatly impacted by the actions you take when buying these three, I thought I’d list what I consider the “best” ways to handle each of these (knowing that there may be other “best” options depending on a person’s circumstances and life goals.) Here goes:
Buying a Home
I listed my thoughts on the best way to buy a home five years ago when I posted My Formula for Buying a House. The keys:
- Live in (or move to) a cheaper area of the country. (And after retirement, you may want to save more by retiring in a foreign country.)
- Buy a house you can easily afford, putting at least 20% down.
- Put extra payments into your budget.
- Put bonuses, gifts, second job income and all other “extra” sources of money into paying off the loan.
- Become debt free in 7-10 years.
Taking these steps allowed me to pay off my mortgage several years ago. The last time I had a mortgage payment was around 1997. Imagine what your life would be like with no mortgage payment. Yes, it’s pretty sweet.
Paying for College
Success in paying for college boils down to the same economics we face when we make any other purchase: be sure the cost is worth it — that you’ll get more out of it than you put in. If you take steps to make the most of your college degree, it’s very likely that going to college will be one of the best financial decisions you ever make. It certainly was for me.
I like to buy new cars (click the link if you want to know why.) I can afford to do this and it’s what I prefer, so I do buy new. But if I was asked, I’d say most people would be better off buying a used car with low miles. That said, the prices used cars go for these days is making buying new not as “crazy” as it used to be.
Whether you buy new or used, here’s what I’d recommend:
- Save up for the purchase in advance and pay cash (I’d take a 0% deal if they offered it, but most people pay the full-interest rates the car companies/banks offer. That’s a big no-no IMO.)
- Buy a car using the web. Not sure how this would work with a used car, but it works like a dream when buying a new car. Here’s the simple new car email I use to get the best deal possible. And for specifics, here are the details on my most recent new car purchase.
So, that’s my take on how to spend several hundreds of thousands of dollars over the course of your lifetime. Any comments?