Prioritizing Major Purchases

[myrdale]

I do not think there is a right or wrong answer for this question, but I wanted to get a consensus of how you would prioritize some of the larger purchases you make (with the assumption you are paying cash). The primary items of interest for me are truck / siding / retirement.

When I moved into my house 12 years ago, despite a fresh paint job, the siding was in rough shape. Since then it has not gotten better. The cost is $17k. I should note the house is paid for.

My truck is a 2002. It has 250,000 miles. It works well. I keep it maintained but usually end up spending $1-2k per year on various maintenance. The cost of a new truck, I am figuring would be $30k.

I send 7.5% to my 401K.

I have an IRA for the last couple of years, but I have only managed to send about $3k to it per year.

The siding has some bad places (not horrible but needs to be addressed). I do not plan on moving in the foreseeable future but it will need to be replaced before I do.

I love my truck, but on occasion I wake up from nightmares about it breaking down. So there is a certain level of anxiety there.

I had $27k cash available at the time.

I made a mental list of the pros and cons. I've been weighting it over for the last month. I finally decided to go ahead with the siding.

This sets me back to $10k cash available. It postpones the truck purchase for a couple of years (assuming I pay cash). It also means I will probably end up going light on the IRA contributions as well this year.

$10k is fine for the emergency fund, but honestly I don't like being that low.

The other option would have been spend no money at all at this time and continue saving.

Any thoughts? In the mean time, I am tightening the budget and trying to put savings into over drive.

[bjl584]

I've become more interested in the concept of using leverage to pay for things lately.

Take your truck. Instead of simply going and buying a truck with cash or with cash plus financing, take some of that $27K you have and use it for a down payment on some type of investment that throws regular cash flow payments. Maybe a rental property. Then, take some of the net from the rent and use it to make your truck payment. When the truck is paid off you still have the investment property that will continue to pay you money each and every month. Rinse and repeat until you have a large portfolio and a considerable amount of wealth. Not for everyone obviously, but it's a concept that I've been reading about lately.

If you want to go the more traditional route, I'd probably look into replacing the truck before I did the siding. A quarter million miles would scare me.

[msomnipotent]

If it were me, I would have replaced the siding a long time ago. Never delay home maintenance because it just causes bigger problems to fix. In my area, snow, rain, and animals would have got behind the siding and caused a lot of rot by now. I can completely relate to having nightmares about my car breaking down. I sold my minivan and financed a new car with a decent down payment and 1.9% financing. I would have preferred a term shorter than 5 years, but we had to finance it that long to get the 1.9%, and there is no pre-payment penalty, so I'm not worried. Is buying a better used truck an option for you? Can you make it last one more year and then buy something better?

How close to retirement are you?

[MonkeyMama]

I personally have a cash-only mindset.

Retirement is priority #1. This can vary based on age and retirement preparedness. But for me, retirement comes above all else. If I can't always save 10%+ for retirement, then something else has to give.

It sounds like it's wise to take care of the siding. (I'm not handy and maybe not the one to ask, for this part, but I probably also somewhat prioritize an investment like real estate. But real estate is very expensive where I live, so I couldn't imagine neglecting my home at all. If it needed work, I'd do the work).

I'd rethink the car situation. You are thinking about two extreme options. If you have a perfectly good vehicle, keep it. Why do you have nightmares about it breaking down? Do you keep it well-maintained? (I've driven some OLD cars. In my experience I can actually afford to maintain my cars so they break down less than newer cars (which most owners can't afford to maintain). I've absolutely never had an unreliable vehicle). So, mostly I'd say to keep it well-maintained and stop stressing about it. If it does break down (beyond reasonable repair), you can always buy something much more used/modest to get you through. That is what I would do. & it sounds like that could be a huge step up from where you are. So in addition to stopping the stressing, just look at more middle ground options. Another used car is better than no car and better than a car loan. I've never prioritized a vehicle enough to spend $30,000. I just don't have the means for that (given my priorities). & I mean that since our mid-20s we've only bought one-year-old vehicles with low mileage. You can get a substantial discount if you are willing to go slightly used. I am also willing to spend $5,000 on a car if I lose my job or something doesn't go according to plan. Just sharing how I prioritize and think through things. If I can save up for a $30,000 car without neglecting retirement or neglecting my house, then I am totally cool with that. If it's that important to you, you will need some more time to get there. Maybe more income too.

P.S. Just because you buy an in-between vehicle doesn't mean you have to keep it forever. I did that once for about 2 years. Kept me out of debt when I had an unexpected need for a different car. Drove it two years until I could more readily afford the vehicle I really wanted. Absolutely no downside. & I wouldn't even do that, in your shoes, unless your vehicle just wouldn't run any more and was too expensive to fix.

[MonkeyMama]

P.S. you do realize you have until April 15th (following year) to fund IRAs, right? Just something else to buy you some more wiggle room, if you weren't aware.

[Jluke]

hopefully you got vinyl siding.

No mortgage - I'd finance a new/certified truck if I could get a rate at 2% or below.

I would prioritize IRA savings, you won't get that opportunity back.

I can't tell what your income level is b/c you said it would take a few years to build back your EF to where you can pay cash and you haven't been able to max the IRA

maybe more budget details (income/expenses) would help us, if you are comfortable sharing.

[cypher1]

I do not think there is a right or wrong answer for this question, but I wanted to get a consensus of how you would prioritize some of the larger purchases you make (with the assumption you are paying cash). The primary items of interest for me are truck / siding / retirement.

$10k is fine for the emergency fund, but honestly I don't like being that low.

The other option would have been spend no money at all at this time and continue saving.

Any thoughts? In the mean time, I am tightening the budget and trying to put savings into over drive.

Whether small or large purchases I ask myself if the item is a need or a want. If it's a want, then it can wait to purchase. Depending on your age, I would think fixed percentage of gross income going to Retirement would be top priority. With remaining savings for needs/wants.

If your current siding needs to be repaired, that sounds more critical and the longer you wait to fix it could lead to bigger expenses. If your car is in working order, it sounds like upgrading cars could wait. I also drive an 03 Honda element with 202K, so I'm with you on high mileage vehicles.

If you own your house, that's great, but how much are your monthly expenses? How much of that 27K represent your EF? I would think the house siding repair/expense would be a part of that EF.

Or if you do the house repair, and have 10K remaining, how many months of expense would that represent? A 3-6mo EF buffer would be help, and you could continue to save for your next truck purchase.

If we had a better idea of monthly net income/expenses, that would paint a better financial picture to work with for providing more specific options.

[TexasHusker]

As cheap as money is these days, I pretty much have a "borrow only" concept.

Use available cash as down payments to borrow more cheap money.

Never tie up big chunks of cash when you can borrow all the cash you need for 5 percent or less.

[disneysteve]

I'm with MonkeyMama in that retirement comes first. Savings happens before spending so that comes out first and then spending is based on what remains.

As for the truck or the siding, personally, I wouldn't feel comfortable driving around in a truck with 250,000 miles on it. I would have replaced it with a good quality used vehicle a long time ago, probably with a low interest loan (2-3%) for 2-3 years.

If the siding is stable and posing no danger to the house, I'd have that at the bottom of the priority list among the things you listed. It sounds like it is primarily cosmetic if it has been that way for 12 years. If I could find a contractor offering a good price for the job and 0% financing, I'd probably jump on that.

[snafu]

Are you experiencing frequent vehicle breakdowns? Since mileage and maintenance are within your control, what is driving your fear? What does Lemon Aid list as frequent breakdowns on your specific year/model vehicle.

I too feel retirement savings needs to be given higher priority. Are you willing to tracking all spending for one month to identify 'leakage,' [incidental spending] Good time to walk through each room, identify items no longer used or needed, possible candidates to be sold on local FB, CraigsList or yard sale. Review all insurance to ensure appropriate to age and value of policies, discount for multiple policies, lower premium from insurance broker, meal planning to use freezer pantry foods at hand before expiry etc. All small cutbacks but cumulatively potential for impact.