So a long, long time ago my mom said something that often resonated with me. She talked about people affording the expensive homes and flashy cars. My parents are those millionaires next door and so are my in-laws. And my parents are also the people who spend money like water, but have always out earned stupid. They've made so much money that it's never mattered how they spent it.
But my mom still preached financially responsibility and buying what you can afford. She said it's not bad to buy a big home or luxury vehicle if you can afford it. The problem is? Affording it. Really affording it. Not affording it on a shoe string.
Sure you can afford the monthly note on either a $500k home (this was a long time ago) or $50k car. But what happens when you need to repair it? Why would anyone want to buy a $500k McMansion and then have to clean it themselves? To really afford a house that big and expensive then you should have enough fat in the budget to hire someone to clean it. Be able to hire someone to fix something if breaks. You shouldn't be worrying about every little repair because if so you can't afford the house. The house is more than the payment monthly.
Same with the car. Her example was if you are sweating buying $400 tires for your luxury car then why did you buy it? Or $1k repair? Did you not realize the car is more than just the payment? Or the more expensive the car, typically the more expensive the repairs? We're not talking older versus newer car but rather brakes on a Toyota versus brakes on the Lexus.
That got me thinking that I would always try to underbuy what we could really afford so I'd have lots of fat in the budget to deal with all the extras. That I could own my house and car and take care of them and not worry they would rule my budget. That the next repair was too expensive and I'd put it off.
Turns out my mom gave good advice. Did you overbuy?
Can you afford your house and car?
May 30th, 2014 at 12:26 pm
May 30th, 2014 at 12:45 pm 1401453912
Bingo! Nothing wrong if you can actually afford it. But lets' face it, it's a stretch for the vast majority of the middle class.
No, we most definitely did not over buy on either of those categories. & those are the biggies. (We also don't have 5 or 6 cars, which seems to be a common theme where I live. You can't survive without 5 cars for 2 adults!).
May 30th, 2014 at 12:50 pm 1401454235
Very good advice!!
May 30th, 2014 at 01:48 pm 1401457701
May 30th, 2014 at 04:50 pm 1401468631
a typical 500K McMansion
May 30th, 2014 at 08:47 pm 1401482850
May 31st, 2014 at 04:45 am 1401511538
My broker thought it was crazy I am saving for a maintenance account for a house I don't own yet but it makes me feel better to have something saved for potential maintenance as soon as I move in. This is not part of the money I am saving for potential remodeling work on the house I buy (paint and flooring is what I think I would do to a home new to me). The idea of living with someone used carpet unnerves me.
My car: I lived as if I had a car payment for years to save money. I needed a large repair on my 12 year old car (which I also paid cash for new in 2001) and decided to take what I had and buy a new car. I had a very small loan that is already paid off (in less than 8 months) and I am already living as if I have a car payment again for the next car in 10-14 years. I also save money monthly into a repair account for any potential maintenance and that is also where I put my travel reimbursements and mileage payments for work trips and travel. It tends to build up fast and once I reach 5k in that account I get to use the travel money for other things. I will keep saving $100 into the repair account for ever.
I also budget $140 for gas each month and rarely go above $70 unless I have to drive to a lot of work meetings so that extra money is saved as well in wither the future car account or the repair account.
June 4th, 2014 at 02:39 pm 1401892749
CC and CB my mom gives very good advice.
Nika, this was a low cost of living area and about 20 years ago. LOL. But to put into your perspective it is basically a $1.5M home at a minimum if not more. Size doesn't matter that's based on location but in most places in the US a $500k home is still a mcmansion.
NDChic, we too bought a bigger house than we needed in 2005. We could afford it but the space was RIDICULOUS. What did a couple need a 3 bd for? we didn't have kids for 5 more years. But it turned into a good investment since we stayed put and didn't have to move after kids.
Kiki, that's a good plan for a house. It allows you the ability to determine you can afford to maintain it.