Rules were meant to be broken- but not on a regular basis. Living a life according to the seemingly conservative and boring rules may not be exciting, but will enable you to weather life's storms when you must then break a rule or two to achieve your needs.
I try to live a good financial live- prepared for life's little setbacks. I have some absolute rules I live by and so far that has worked out pretty well. However I recently had a situation where I broke not one but 3 of my hard and fast rules and because I generally live by my rules and this situation was the exception, it was ok.
Let me explain. Last week we bought a new car. My general rule is that you buy a car, pay it off as soon as possible and drive it until it dies, becomes unsafe, or unreliable. Meanwhile you have been continuing to make those car payments to a savings account to pay for repairs and a nice down payment on your next vehicle so the loan is small and short.
Our vehicle was a 2010 model year with about 2 years of payments on it. But in the last 24,000 miles it has been at the dealer for repairs 22 times. Not minor things either- big expensive items that fortunately were covered by the 5 year 100,000 mile warranty that came with the vehicle. That warranty ended a couple of weeks ago at the 5 year mark.
We bought the car used- it was about a year old, at a great price and always maintained it at the dealership where we have a long standing relationship (that relationship really helped- more on that later). It had gotten to the point that I was reluctant to drive the vehicle to out of town offices because of the fear it would break down. That was really a shame since I really liked the vehicle. After doing quite a bit of research on this vehicle over the past couple of years I discovered it was a problem with the design and manufacture of the engine that was systemic to this make and year. So after taking it back to the dealer last week for yet another (but minor) problem, we picked it up and headed to the showroom to voice our displeasure with the car and see what we could do.
The biggest problem was that we still owed on the vehicle and its value was about what we owed on it- not giving us any trade in against the price of the new one. Our second biggest problem is that we are renovating an old home while living in a new one- two mortgages-and a pretty high debt to income ratio which meant we shouldn't have considering taking on new debt.
Here's where my rules about buying cars just fell by the wayside.
So why did I break this rule? In doing research on my old vehicle, I learned that the engine problems were fixed on the 2013 model engines. I try never to buy the first year of anything new- let them work out all the bugs. That left me with 2014 models and my dealer was out of them. Sigh. A brand new 2015 it was (only had 7 miles on it!)
Do not buy a car based on the monthly payment. Car (and other retailers who offer financing of goods) have many different ways to make whatever car you want fit the monthly payment you tell them you need. Sometimes people end up paying more for the car or getting less for their trade in because they are focused on the monthly payments instead of the prices of the car and the trade in. Another trick is to make the car loan longer (now up to 84 months! That's 7 years) and then you pay more interest and that makes the monthly payment lower- but you ending up paying in the end.
So why did I break this rule? We really needed to keep our budget in balance and while in the near future (when house renovations are complete and it is producing income) we will be in a position to make higher or double payments-we can't right now so this was a major consideration.
Do not purchase extended warranties on the vehicle-they are a waste of money. Generally, extended warranties are real money makers for dealerships and an expensive piece of protection for the consumer. Stats show that 55% of car owners never use their extended warranties during the life time of the warranty. Further- those that did use it spent hundreds more on the warranty than they did in repairs. You would be much better off taking that money for the warranty and putting it away into a savings account to use for those possible repairs. If you need it- great you have it- if not you are that much money closer to your next vehicle. If you have control of that money you can invest it and make more money rather that have a dealer roll it into your loan which will be costing you MORE MONEY.
Why did I break this rule? Like a lot of people I let my emotions get the better of me on this one. My last experience with this make and model and the number of times it was in the repair shop for really expensive repairs was a little daunting to me. New cars have between 20-30 different computers on them and the extended (non- bumper to bumper) warranty that comes with the card does not cover the computers. Because I have a new and longer loan on this car- I bought the warranty to cover the car bumper to bumper for the life of the loan and because it did not raise my monthly payment amount beyond what I am paying now. When I am in a better financial position, I will likely cancel the warranty and put that extra money into a savings account like I tell you to do.
So the moral of the story is that breaking the financial rules is ok- sometimes. It is only because I live by the rules on a daily basis that I can break them and have it work out to my advantage in the long run. Because I have the discipline (and the plans) to change the current situation when my financial picture changes- I can take these risks now. I am also looking for ways to trim my budget to begin making accelerated payments on the car loan as soon as possible. After all- I have to follow the rules too!