Family and Finances: Episode 5, Part 2

Let's talk now about the cars. That's an area where most people spend about 14% of their budget because they're making car payments. Usually they're borrowing for a car, I think now, five to seven years you could get a car note for. And that's really, really painful. Well, and I guess people want new cars because they're safe and have all this new technology and it's easy to get talked into, you know, the payments over a length of time. Well, some people only ask what the monthly payment will be when they walk in to buy a car. And it's like a jigsaw puzzle, if that payment meets, you know, what they have left in their budget then they're going to buy new. We did that. I'm not condemning anybody who's done it. I mean, that picture looked just like us. We bought new, I think the first two or three cars that we bought. No, your dad gave us a new car when we got married and then we bought a green Volvo. Remember that? Yeah, I do. Oh, and then we did, we bought a pickup and a new van. Those were all new. Those were new. But I remember when we bought that pickup, I could not wait to get rid of that debt. I remember specifically doubling up on payments. I hated to have to owe on that. Well, and then we decided no more of that because you lose money. You've lost money the minute you drive it off the lot. It depreciates 20 or 30 percent. So imagine if you buy a $30,000 car, you drive it home and it's now worth, what, $20,000. Not quite that low.

Well, over... Significantly less. Yeah, you put 40,000, 50,000 miles on it and it's going to be, you've lost quite a bit of money. So we just, we couldn't afford to do it anymore. And so we had to pay off the cars that we had, drive them as long as we could, and keep paying ourselves that monthly payment until we could go buy one with cash. Right. Do you remember the feeling of that, writing a check for a car? Well, I think at one point, didn't, remember that old white car that you bought when we lived in Richardson? That sedan? No, I don't. Did you pay $100 for it or $1,000? Oh, oh. You got it. No, I paid $850 for that car. It was a Plymouth Sunbeam hatchback and it leaked everything I put in it. I rode in it very infrequently. You wouldn't ride in it. It leaked water from the radiator. It leaked air from the tires. It leaked oil from the engine. It leaked gasoline from the gas tank. So I carried all of that in the back to refill it when I made stops. I drove that for two years without air conditioning in Texas because I just, no more car payments. Right. And I remember when I sold it, I sold it for $850. It had not lost any value in two years and I told the person who bought it everything that was wrong with it.

And they said, at least you're honest. And so it was really the best car I'd ever owned in terms of not losing any money on it. Well, you probably spent $850 on all the stuff you had to put in it. Had to buy. I had to carry it around with me. It was an embarrassing car, but you know, it wasn't, it was helpful to our budget. Right. And I think cars have become a little bit of our identity. You know, we get designer cars and we get leather seats and seat warmers and DVD players in the back of the headrest. And all of those things that we just decided we can't afford. And so we don't do that anymore. No, but I think there's a lot of single moms that want something safe to carry their children. And they, you know, so, um, I mean, I pity, pity them when they go in and these sales people know how to sell a car and to talk them into, you know, the payments. Well, we've always said we need reliable cars. We don't want cars that break down. And so we'll buy a certified dealer, certified used car and we get to pay cash for them now. So if you've got a car you can trade in or sell and get cash for, you take that money and then whatever you've saved and you write a check for it and you drive it off and, uh, you know, you drive it as long as you, as you need it for your job or career. And as long as it's reliable, just keep going. Right. So right now I'm driving a 2007, so that's 13 years old and it may last another 10 years. So that's not coming out of our monthly budget. It's been paid for for a long time. Your car is paid for. And so that helps. a tremendous amount to not have that debt.

So let's talk about student loans. People get into a lot of trouble with student loans. Oh, let me just mention about leasing cars before I leave there. Some people say, isn't it cheaper to lease a car? No, it is not. Leasing a car means somebody else bought it and they're making money on you to drive it. And I've seen many people that I've talked to get upside down on their lease when they actually owe a payoff amount when they turn it in because they've gone over the mileage allotment. So I would much rather advise you not to lease a car, but just to buy something that you can pay cash for, even if it's $800, even if it's $2,000 car. Drive it for a year, as long as it's reliable and save, save, save until you can get a better one. So let's go back to student loans, Anne. You talked about we had one when we got married and we paid that off pretty quickly. Right, but in today's market, student loans, it's almost expected. One of our boys said he didn't know a single person that didn't have a student loan when he was going to school. Well, I remember he called us and said, mom and dad, are we rich? And I said, no, why are you asking? He said, because I don't have a student loan and everybody else does

because it's just become so common for paying your way through school. But you can, let's just say you have a student loan. And it's not forgivable in bankruptcy. Somebody is going to have to pay for it, even if it's your heirs. So in our case, we decided right after college, we'd get rid of that first. And because we had two incomes, we used your income to double up on payments and to get rid of it. And I think I felt a lot of freedom from that and went out and started borrowing other ways. Well, I think there's lots of ways people can restructure their student loans. I'm not really familiar with all those ways. You probably are, but definitely look into that and make sure it's not a scam. Well, I think you should pay off your student loans as quickly as possible. Some people say, well, they're going to be with me for life. I'll just drag it out. But it's really good to just knock that one out as soon as possible. I would say, get rid of the credit cards first, the car loans second, then the student loans would be third on my priority list. And I definitely wouldn't take out student loans for your children. Our goal was, when our children graduated from college

and through the cap and into the air on graduation day, that they were truly celebrating and not entering into a time of massive student loan debt. So we've, by God's grace, been able to take that position and live that out. Well, we always emphasize that they study hard and try to get scholarships. I mean, universities have money that they're going to award to somebody. So we emphasize that. Yeah, we told our boys that their best job they could have would be to earn good grades because those scholarships would be worth far more than somebody would pay them on a minimum wage. If you think about the value of a scholarship long-term, it is really a high return on good grades. Well, and I think one thing, as a parent, it's better, if you have to, if a student needs a loan, I would recommend the student take it out because they're the ones who are gonna have to be responsible to pay it off. Yeah, yeah, not the parents or the grandparents. Right, right. Yeah, we've known far too many couples or counseled people or families where the parents or grandparents have gotten a real bind over that. You know, there's one area where people go into debt that we really haven't mentioned here, and that's on large purchases

like furniture or home improvements. Appliances. Yeah, appliances. It is always good to have a savings account ready for that because reality is you're gonna need it. You're gonna need to replace some furniture or the washer and dryer's gonna go out or the hot water heater's gonna go out. And that's just a matter of saving in your budget and saving up for those large purchases so you don't have to go into the store and ask for credit and you don't have to use a credit card for that. And we've been able to do that. And a lot of that comes from just being frugal in other areas of our life. Right. Again, it goes back to making sacrifices and being disciplined. Let's go to the home mortgage because this is where there's also a lot of pain. And people ask, you know, should they rent or buy and which is better? So I'm gonna just give my take on that. We've done both. I'm actually a pretty big advocate for renting. People say, well, you're just throwing money away. No, you're not throwing it away. You're getting a place to live. You're also getting some flexibility. Right, and there have been several points in our lives

where renting was the best decision we should have made, and we enjoyed those homes. A lot of it has to do with your job, if your job is secure or insecure, if your family is growing, if you are needing to just save some money so you don't have all that overhead of maintenance and taxes and the other things that go with home ownership. So I think renting is a good decision. If you decide you're ready to buy a house, you and I believe, and we've seen this over and over and over, that you need a healthy down payment of at least 20%, because if you don't do that and your home value changes, you could be in real trouble even to make your mortgage payment. Mm-hmm. You always emphasize buying in the right location. You wanna buy in a good school district if possible, and trying to find an area that's appreciating. Well, what I like to think of, Ann, is I wanna buy a house that other people would buy from me, and I think about resale before I ever buy a house so that you don't get stuck with something nobody else wants. In fact, it's good to buy a home in a high-value area where there's a little bit of competition for the houses. That means that it's probably gonna exist when you go to sell your house. Right.