Hey Taylor – I’ve been trying to save up for a down payment on a house and I’ve got about $30,000 in the bank. However, I just found out my truck is shot and needs pretty major repairs. Do I steal from my house fund? Do I buy the house since that’s a wealth-builder and try to find a cheap replacement vehicle? What’s the financially savvy move here? – Justin

Hey Justin – Sorry to hear about your car, those big repairs always feel like a gut punch. As for house versus car, there are a lot of variables to consider. You have to think about where you want to be in the next five years, but also what you need to get done next week.

–1. Life beyond the down payment. Let’s look at the $30,000 you’ve got. That’s a decent down payment for a house. After that, you’ve got closing costs, property taxes, insurance, mortgage, and home maintenance. If you sign on a house tomorrow, you’re out $30,000 and you owe a lot more each month because building equity ain’t cheap. Meanwhile, a car depreciates rapidly but without the $2,000-3,000 in monthly bills that come with a house. As far as your future earnings go, which makes more sense? Are you ready for your higher monthly costs, and could you cover those and manage a car lease?

–2. Want vs need. On the car front, you have to be really honest with yourself. Could you get by driving the cheapest vehicle on the used car lot? Do you need a truck for work and can’t go below a certain towing capacity? If you commute or have a driving-dependent lifestyle, you don’t really have the luxury of buying a questionable car. This is especially true if you’re about to buy a house, because you might not have the flexibility to repair your clunker once there’s a mortgage in play. A house is the obvious choice as far as long-term wealth is concerned, but can you survive that decision in the short term?

–3. Make a plan. Try not to look at this as a choice between two things, but rather the order in which you accomplish your goals. You need a new vehicle, and you’d like to buy a house. If you invest in the property, how long will it take before you’ve saved enough to get the car you need? Conversely, if you get a new truck, how long will it take to build that down payment back up? Can you spend a few months carless while you get settled in the house, or do you need to spend the money on a reliable truck, then get back to saving?

At the end of the day, you need a home and a means of getting around. One will come before the other, and you’ll eventually have both. Thanks for the question!

 

Taylor Kovar, CFP®

CHIEF EXECUTIVE OFFICER