Vehicle purchase...WWYD?

[castoral]

DH and I have saved to purchase a new to us SUV. (There are various reasons for purchasing an SUV vs. a van, so please, no posting about not buying an SUV). We have saved for it for a long time, but now DH has been dragging his feet on it because he doesn't want to spend our hard earned savings. Plus, time is running out on our special financing option. Sowe came to the agreement to finance half of it (@ 3.24% and we're earning 4.5% on our savings). I'm okay with this, but wanted to get input...

I worked a budget to see if we could afford a payment and also just because I'd like to get back on to actually sticking to a budget since we've been freely spending a lot over the past year or two...

House Payment 1500
Eating Out 160.00
Gas + oil changes/maint. 320
Groceries 400
Cable 45.00
Phone and internet 43.00
Babysitting 520.00
College savings for 2 kids 200.00
Electric (no gas) 190.00
Cell phone 65.00
Water 60.00
Garbage 18.00
Entertainment 100.00
Clothes/Extra Needs 100.00
Car Payment 500.00
Car insurance for 3 cars 65.00
4300.00

Take Home Pay
UPS 1160 <--- goes in separate account
and we pay 529 from this,
but rest is just savings
USAF 4000 <---we try to live off my salary alone -
I usually have extra money at end of month
because I travel for business at least once a month
and get more money than I tend to spend
Extra income:
DH ownes a landscaping business as well and profits
about $35K a year which we use for remodeling projects,
funding our IRA, put in the stock market, vacations, etc.

Retirement:
I put 10% away in federal TSP account (like 401K)
DH's put 10% away between stock purchase and 401K
We will be getting two pensions as well, but we plan as if
we won't get either

Savings:
1 year emergency fund - $36K in money market fund
$32K in savings for SUV and basement remodel this winter
$12K in business checking - $4K needed for equipment and
March 2010 season start up, rest will be moved into our savings shortly

So WDYT???? Can we afford it? Is the agreement we came to a good decision?

[briggsy13]

If I were you, I would pay cash!! You are in a very good financial situation. Is the $500 car payment the one you would be taking on? Or is that a car you already have? I would just hate having a payment hanging over my head if I had that much in savings. That is my personal opinion of course, you should do what makes both you and your dh happy. Congrats on great income and good financial work!!

[castoral]

Originally Posted by briggsy13 If I were you, I would pay cash!! You are in a very good financial situation. Is the $500 car payment the one you would be taking on? Or is that a car you already have? I would just hate having a payment hanging over my head if I had that much in savings. That is my personal opinion of course, you should do what makes both you and your dh happy. Congrats on great income and good financial work!!

The new budget reflects what the car payment would be as well as what our insurance would cost for including the third vehicle. It's higher than I like (because we hate making payments on anything), but like I said, it was a compromise I think I'm willing to deal with.

I also thought about maybe just financing it, but then slowly paying it off faster. Like paying $2K a month and taking it from that savings. That way it's not like we're paying this HUGE chunk of cash for something all at once. Plus, I checked and there is no penalty for early repayment.

And we really do have a lot to be thankful for. It seems like just yesterday we bought our first house, I was finishing school and nannying part time and our total income for the year was $25K! That was in 2005 so all the scrimping and saving and hard work has paid off for us.

[myfrugalfunlife]

Well as a hard core DR follower, there's no way I'd take any kind of loan for a vehicle. You have a ton of income coming in and a LOT of savings (with all of it combined)-why not just pay cash for something cheaper and not have to incur debt? Do you have an auto auction nearby? My bil bought an suv for around $8,000 and it was only three years old! They also bought their car there. Both were incredible deals and they paid cash for them

[royj1234]

I vote pay cash. I think you will analyze the decision more and go for a decently priced vehicle if you have to pay cash. Great job building up that savings and car fund!!

[myfrugalfunlife]

Hang on, I just saw that you have $32,000 put away for an suv so why aren't you paying cash for a good used one You have more than enough cash pust aside for it already??

[hopetc]

I'd be fine with it as long as you're earning more interest than spending and with the agreement that you keep the amount to pay it off in savings, and pay it off if the interest you're earning drops.

Bigger question: Where/how are you earning 4.5% on it?

[kbz2002]

Is the $500 car payment with you financing half of it? That's an awefully expensive SUV?? Are your jobs pretty secure? The only other thing that I see is that you have car insurance for 3 cars, do you really need the SUV? Is the 32K in savings only half of the price of the SUV or would you actually be able to pay cash for it?

Now back to your question... yes I think you can afford if you have the money to pay cash for it. It sounds like you are really good at making sure you are saving your money and you have an enormous emergency fund. I personally wouldn't buy a third vehicle (we are a 1 vehicle family) but I would probably finance it if I needed the vehicle and was in your financial situation just because you would be still earning an additional 1% on your initial savings. So even though the car would depreciate quicker you still have enough in savings to pay it completely off and you would be earning money still on that. So even though you are paying interest on the vehicle you are making up the value in your savings. I actually do finance a lot of things with the 0% interest even though I can pay cash for them, I just put the money in a seperate account that I make sure I absolutely do not touch and I earn interest and pay it off at the same time. Usually I even come out ahead because I try to still figure out a way to make the payment and I don't take the payments out of my account, but the account is there just incase. But I know I'm in the minority here but that's just my 2 cents on it. It's not very DR to actually do the finance option but I would (then again I don't really follow DR).

[castoral]

The 4.5% was with a local credit union. It's only up to $25,000, but still good. We had to move DH's pay roll to go into the account and we have to use the debit card 12 times a month, but DH goes through the McDonald's drive thru every day on his way to work and charges his $1.07 sweet tea, haha! It's his one splurge for the day and he says the sugar gets him moving at 3am so fine. It's guarenteed for as long as we hold the account though...

As for the purchase, what we are actually getting in a Suburban or Yukon XL. We'd like a 2007 or 2008 with less than 30,000 miles on it so this will run us about $35K. There are many reasons we'd like this for our third vehicle so I'm not really going to go into that since that part is already decided and agreed on by both of us. And yes, I do understand how these depreciate, but over the course of 15+ years we plan on keeping it, honstly, I'm fine with that.

But aftering reading some of the responses, I was all gun ho to just pay cash and have it out of the way. I'm not a HUGE fan of DR. I like his "snowball" approach to debt and his theories do make sense to a point, but like pp said, I personaly have always felt it's fine to do 0% and set the money aside to pay for it in case something did happen. We have financed MANY things this way and it's worked for us.

Anyway, got home now and had another talk with DH and he said his main reason for not wanting to pay cash is he'd like to have the money available for other "business" ventures. In the past he's made a lot of our money from buying things from land to landscaping/lawn care equipment to cars when people needed to get rid of them quick and then holding on to them/selling them for more. We also have tossed around the idea of college rental properties with my parents. So while he said we should set it aside, he thinks we should should just finance it but pay it off agressively...like $500 a month from my check and then $1500 a month where his check goes into (our savings account). Thoughts on this?

That woud have the new vehicle paid off in about 9 months which would put us at next September. At that time we'd also "cash out" DH's business account which would put another $35K or so into savings.

[jubethone]

http://www.fitzmall.com/fitzway/carf...39984548587963

I did find close to what you are looking for 26819 delivered. If you were originally looking to spend 32K then is it possible to convince your DH to just pay it off if you get a good deal?