Money Sundays: Get Your Big Ticket Purchases Right. The Rest Takes Care of Itself

Since I left my Wall Street career back in mid-2008, I've been spending a decent amount of my time helping people make better saving, investing and retirement planning decisions. Today, I want to share a gigantic piece of financial advice that I find myself sharing with nearly everyone who comes to me for help:

Get your big-ticket decisions right and the rest will take care of itself.

There are three primary areas of your financial life where you can apply this concept and make a significant impact:

* Make sure you have a modest mortgage that you can easily afford (for couples, this means "afford easily on one income").
* Buy inexpensive but reliable cars and drive them for a long time (I'd say 7-9 years at a minimum).
* Pay down all debt aggressively and relentlessly.

Make these three decisions properly and you'll free up hundreds (if not thousands) of dollars per month for you and your family. Every month, forever. Which means over the course of your life, these decisions will be worth hundreds of thousands of dollars in extra wealth. Perhaps much more.

The converse is true too: making these decisions improperly will cost you hundreds of thousands of dollars in lost wealth.

The problem, of course, is that there's an entire system built around us that encourages people to overextend themselves on major life purchases.

So don't let yourself get played by the system. Readers, I want you to play your game with your big ticket decisions--not society's game or the consumerism game. Don't reach financially for major purchases. Instead, avoid them or defer them until they are no longer reaches. Get these big-ticket decisions right and you'll face a tiny fraction of the financial stress of the average person.

If you think about it, this is the 80/20 Rule applied yet again: a few really big spending decisions will drive the vast majority of your financial success. Or failure. Home, car and debt decisions are usually by miles your largest and most important key decisions. Getting them right--or fixing them if you've gotten them wrong--will make your financial life easier by light years.

Now. There's one more element to this issue that seals the deal. It has to do with discipline. And it's not what you think.

Much of the financial advice that gets shoveled onto us involves canned ideas, like bringing your lunch to work rather than buying it, or cutting out your daily $5 latte or whatever. The problem with these smallish daily decisions is that they require constant daily discipline. Therefore they're kind of hard to do, and they need to be repeated--constantly--to have any impact.

But when you buy a far less expensive home than you can afford, or rent an apartment well beneath your means, or purchase a car that costs far less than what you can afford, you create enormous, sustainable savings with a single, one-time decision.

You have to decide to cut out your daily latte every single time--and even then it only saves a few bucks. Big decisions can be made once and only once--and they pay huge, repeated financial dividends for years.

Hey, there's nothing wrong with eliminating your daily wasteful expenditures. I'm cool with that too. But I think my readers can and should aim much higher. You are all capable of driving far more significant and powerful financial results.

After all, if you get these major decisions right, the cost of a daily latte won't even matter.

Readers, what would you add? What big-ticket financial decisions have you gotten right... or wrong? Share your experiences and what you've learned!

Related Posts:
Retail Ninja Mind Trick #6: Rationalization and Justification
The 80-Second Latte
How to Own the Consumer Products Industry--And I Mean Literally Own It
Prices, Zombies and the Advertising-Consumption Cycle
Divorce Yourself from the False Reality of Your Grocery Store

How can I support Casual Kitchen?
For those readers interested in supporting Casual Kitchen, the easiest way is to do so is to do all your shopping at via the links on this site. You can also link to me or subscribe to my RSS feed. Finally, consider sharing this article, or any other article you particularly enjoyed here, to Facebook, Twitter (follow me @danielckoontz!) or to bookmarking sites like reddit, digg or stumbleupon. I'm deeply grateful to my readers for their ongoing support.


Janet C. said...

It has taken us too long perhaps, but we finally have come to a similar conclusion on our own - which is why we live in a small older house with a mortgage less than 500 dollars and drive Toyotas wirh over 100K miles each. Our wealth is reflected in the artwork on the walls - some is actually quite valuable in real dollars but it is all paid for - and each piece reminds us of a place we've traveled to and loved......But the best part about living beneath our means is that we no longer have fights about money - and we are a happier couple as a result!

Tragic Sandwich said...

Our cars are over 10 years old, and in good shape--we bought them so we could drive them that long, if not longer. And we put down enough on our house to have a mortgage payment that is comparable to what we were paying in rent. It would be tough but doable on one income--but that was also true for rent.

And it's good that we have kept those expenses as low as we can, because daycare and other child development costs are expensive.

homefire said...

This is great. I read it aloud to my husband and he said, "Now THAT is rock solid." It's basically what we've always done. We have a pretty low income, but have been debt free for years, and have rarely felt that we needed to scrimp.

chacha1 said...

I have made plenty of financial mistakes, but at least on these "big ones" we are on track.

As expensive as our apartment is, either of us could swing the entire rent alone. It's remarkable what a feeling of security having an "extra" income can convey.

Our cars are 1995 and 1999 model Accords with about 150K and 190K miles on them. We are much too stubborn to buy new-to-us vehicles as long as these will still run. :-)

That said, I also gave up a daily latte habit!

Marcia said...

I prefer to do both. What did we do wrong? Bought a house in coastal Southern Cali in 2004. It is still worth less than we paid for it. Our mortgage payment is very high ($2950, but we pay $4000 because we are trying to pay it down early).

We could squeak it on my husband's paycheck, but not mine.

Cars however? We generally buy used, but our last two were new. We have a Civic and a Matrix. Both reliable and expect to drive for 10-20 years. And we paid cash.

Which brings me to #2. How do we pay cash? I did the math once. By packing my lunch (and my hubby's lunch), I save about $16,500 every 5 years. That's very close to a new car like mine.

Yes, you have to do it every day. But, once you get used to making your own coffee and packing 3 lunches a day (I pack my kid's too), it becomes second nature. It's the gift that keeps on giving.

Daniel said...

Marcia and Chacha, great point. Absolutely you can do both, and Marcia, you're right: limiting "latte factor"-type expenses can quickly become ingrained with practice. We found this to be true in our experience too.

I guess I wasn't so much downplaying the value of cutting these types of expenses so much as playing up the significant financial impact of a big ticket decision made properly... once.

But yes, you're both right: if you can do both, you're going to be in even better shape.


Daniel said...

Also interesting and encouraging to see readers discovering the emotional value of managing these big ticket decisions. Janet and her husband fight less over money, and Chacha has a stronger feeling of financial security. Homefire doesn't feel the need to scrimp.

I didn't even get into these positive emotional aspects of big ticket items at all--and I probably should have! These are all powerful reasons to manage down big expenses, and they actually lead to a better quality of life.