Hello! We’re excited to kick start a new column where we discuss money questions from real-life Cheapster readers (that’s you!). So first up is my buddy whom we shall call the Earth Crusader. The Earth Crusader just landed a new gig with an environmental non-profit with a hefty boost in pay.
Congrats! The thing is that although he has been carless in L.A. for quite some time, at his new gig he’ll be shuttling to off-site meetings all around time, and anticipates needing a car for his new job. He was previously making $37k and at his current job he got bumped up to $44k, which is a $7k increase.
The question is: Should he purchase a new car?
By purchasing a new ride, Earth Crusader will be undergoing lifestyle inflation, which means a change in the way you live that will increase your monthly living expenses. This is different than making a one-time big item purchase. Other examples of lifestyle inflation include moving to a larger space or starting a family. The thing is that even if you had enough saved to put a huge chunk down toward a car or go the used car route, there’s still the cost of gas, insurance, registration fees, repairs, and routine maintenance. You get the picture.
The great news is that there are no other anticipated increases in his expenses such as moving, buying new wardrobe, that sort of thing.
Here’s what I suggest:
Give it a trial period. Before committing to buying a car, look into other options. Earth Crusader is considering buying an electric bike (roughly $2,500 new), carpooling with co-workers, and using a ride sharing service such as Zipcar, Lyft or Zimride for any driving needs. If you’re new to these services, some of them offer a discount or money in your account when you join. Since how often he’ll need to use a car is a big unknown, giving it 3-6 months before buying a car would help him make the best decision.
Know what you are giving up. The Earth Crusader and I spent some time going over his budget and long-term money goals. He provided a very detailed budget that he created in Excel (yay!). His three main money goals for the year are: 1) Pay off credit card debt ($2,500), 2) Have an accumulated savings of $2,500, and 3) Have a REAL vacation (i.e., not crashing on your friend’s couch, meaning international travel, roughly $2,500). So by buying a car and keeping up with payments and related expenses, you might be able to knock out one of these goals instead of all three. I suggest spending time figuring out what priorities are more important to you. It sounds like Earth Crusader, up until this point, was perfectly happy without owning a car. So there’s that. I’m all for paying off credit card debt before incurring any other debt, but we’re not talking about me here.
Takeaways: Write down what your goals are to make sure your actions are in alignment with your game plan. Before making major decisions, flirt with the idea by doing additional research.
Have a soul-burning question on money stuff? Don’t fret. Just shoot me an email at jackie@cheapsters.org.
Photo credit: RETURN TO INNOCENCE via photopin (license)
