I know a couple who recently paid off massive credit card debt. After years of scrimping and never spending money on anything fun, they wanted to celebrate.
I get that. Really, I do.
But they celebrated by putting themselves right back in debt.
They purchased two used vehicles.
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I asked the woman if her husband really wanted a new vehicle or if he just bought the fancy new car to impress other people. I said, “Is he only buying this because all of his friends keep asking him when he’s going to buy a new car?”
“It’s not his friends who keep asking; it’s his subordinates,” she whispered in a horrified tone.
He had recently been promoted and had received a pretty hefty raise. Regardless, they couldn’t afford new vehicles because they still had about $10k left in credit card debt, some student loan debt, and no emergency fund.
But they didn’t care about that. They were tired of driving “embarrassing” vehicles (that were actually pretty decent, in my opinion). The husband was a “big shot” now and he had to dress the part.
Unfortunately, many of us fall victim to the “lifestyle inflation” trap at some point in our lives. Making more money doesn’t make any difference if you increase your expenses every time you get a raise. Increasing your income will only help your financial situation if you know how to manage your money.
Too often, we decide that we need a new car, or a new wardrobe, or a bigger house, just because we want to impress those around us and “keep up with the Joneses”.
Before purchasing a new vehicle, I recommend asking yourself the following questions:
- Why do I want this? Is it because I truly want it, or is it because I think others expect me to buy it?
- Would it make more sense to put $200/month toward paying off other debts or building savings?
- Could I wait until I can afford to pay cash for the vehicle, or until I could at least afford to pay the car loan off early?
- How expensive is my current car? Is my current vehicle costing me as much as a new vehicle would because of all of the repairs it needs?
If you’re in debt or don’t have any savings, I don’t recommend buying a new car until your debt is paid off and/or you’ve built up an emergency fund.
If your current vehicle is old and costing you a crazy amount in repairs, that might be a different story. Some suggest comparing the cost of the repairs to a year’s worth of car payments. However, this ignores the other costs that come along with purchasing a new vehicle.
Keep in mind that a newer vehicle will also require more expensive tabs, more costly repairs (even new vehicles need repairs sometimes), and higher car insurance premiums.
So, is it time for a new car? If you’re debt-free, have plenty in savings, and truly want a new vehicle, the answer might be yes.
Otherwise, the answer is probably no.
Other stuff you might like:
Personal Finance Resources:
The Total Money Makeover by Dave Ramsey
YOLO: The Roadmap to Financial Wellness and a Purposeful Life by Jason Vitug
Smart Women Finish Rich by David Bach
It’s Only Money and It Does Grow on Trees by Cara MacMillan
How to Blog for Profit Without Selling Your Soul by Ruth Soukup
365 Blog Topic Ideas for the Lifestyle Blogger Who Has Nothing to Write About by Dana Fox
Secrets to Blogging Your Way to a Six Figure Income by ProBlogger