Sometimes, major purchases come in waves. My husband and I are facing a few large expenses at the moment, and we’re currently trying to decide how much money we should be spending in cash versus how much we should be financing.
For context, with a third child recently born, we knew we needed to purchase a new vehicle to transport all the littles. But vans are expensive, whether it’s new, used, or leased. We also need to do a few outside renovations on our house, and the city has actually given us notice that we need to do it this year. And lastly, our air conditioning unit has, unfortunately, gone completely kaput. We live in Texas, so the AC is non-negotiable.
So basically, we need a new van, renovations done, and a new air conditioning unit. And these things are expensive! We’re trying to decide whether to wait to pay in all cash or take out loans to get them done more quickly. I thought I’d bring you guys along in my thought process and walk you through how we’re making these decisions.
Can it wait?
Of course, if we can’t do all these things right now, our world isn’t over. But it will be so much more difficult.
When I was thinking about whether or not these were actually necessary expenses, I could feel so many of my old money stories popping up. As a kid, money was always tight. The goal was to spend as little as possible while still fulfilling our needs. Luckily, I’m not in that position anymore, but I still sometimes find myself falling into that way of thinking.
Once I was fully honest about the necessity of these three large expenses, I realized something: Yes, they could conceivably wait… but did that mean they should?
Now, I could only come to that conclusion knowing that my husband and I have safety nets in place. This is why I say personal finance is personal. Because we have a fully funded emergency fund, we know that we will always have enough to live on for a few months. I know my retirement isn’t at risk from any large expense and that we have life insurance in place.
So with these safety nets in place, we could ask ourselves more than “do we need to do this?” And start asking, “Do I want to do this?”
Looking at the numbers
When my husband and I sat down to discuss this, we looked pragmatically at our options. There were a few places we could pull cash from to fund some of these expenses. Additionally, we analyzed how much debt we had.
I’ve got to be honest — with the situation of the current stock market, it’s kind of killing me not to be able to put this money into stocks. But as a financial planner, I know that sometimes life dictates spending in places we don’t necessarily want to. If our air conditioning breaks, our summers will be hotter than Hades. If we don’t renovate the outside of our house, the city will start fining us.
So essentially, all of these have a bit of urgency attached to it. Once we decided on that, it came down to figuring out where and how we would fund these expenses.
For example, interest rates are going up. So if we refinanced the house to pull more money out or get a HELOC, it would be both a hassle and extremely expensive. Then, we looked to see if we had cash reserves we could use.
Let’s look at the car, as well. Those interest rates are pretty high. With the air conditioning, the company does offer a 0% financing option… with a few twists.
Really, what it all came down to was the decision that we need to try and spend as much in cash as we possibly can and finance the least amount.
Of course, spending cash does give us some boundaries and a little less flexibility. But the best place to spend that cash is on the house, and then to finance the air conditioning and the car.
What do we need?
I have three small children, one of who is a newborn. Both my husband and I work. Yes, we could do some of the exterior housework ourselves and figure out how to make it less expensive. But the truth is that we just don’t have the time or energy to do that.
The most popular personal finance advice then would be to wait and pay for everything in cash. But like I mentioned before, there’s a sense of urgency attached to all of these things.
So the middle ground was to decide that, yes, each of these expenses is necessary. And on top of that, we want to spend as much cash as possible and finance as little as possible while still keeping our safety fund and investment reserves.
Like any situation, what works for us isn’t going to work for everyone else. I don’t want you to take this blog post as my advice on what you should do. Instead, this is just insight into how I think about the complicated and competing priorities that tend to come in life.
Remember, whatever you do, make sure it’s the right path and decision for you and your family, regardless of what anyone else might say!