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Don't Let a New House or Car Bust Your Budget

Car

Just because you can buy it doesn't mean you should.

That basic financial rule of thumb is especially true when you're shopping for a home or car, says JJ Montanaro, a certified financial planner™ professional with USAA. Most people take years to pay off those big-ticket items, so they deserve serious scrutiny.

Montanaro suggests considering the following before taking the plunge:

  • Look to the future. How might your housing or transportation requirements change over the life of your purchase? Will what's "perfect" now become "not quite right" if family size, job requirements or other aspects of your life change? Just as important: Will the purchase still be manageable if you encounter a financial setback?
  • Question your motives. Homes and cars can become status symbols, but at a high price. Does your family really need a huge house or that top-of-the-line car? Can you do without the extras?
  • Avoid long-term vehicle loans. The longer the loan term, the more you pay in interest.
  • Look into a long-term mortgage. If you take out a 30-year fixed mortgage but keep the payment schedule required by a 15-year loan, you'll pay down the principal quickly, reducing the term of the loan. That longer payback time also means you won't be locked into the big monthly payment if there's an income disruption.
  • Assess your debt situation. Calculate your debt-to-income ratio to make sure your purchase doesn't put you in over your head.
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