Big Ticket Items

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We've discussed a lot of frugal tips here in the past five months, some with big payoff, and others...not so much, which is the intent of this blog. We offer a spectrum of money-saving ideas, but it's up to you what's (literally) worth it to pursue.

I want to highlight the importance of big ticket items: rent/mortgage and car. These two alone usually comprise about 30-40% of a typical household budget. Obviously, it's important to consider the long-term implications (opportunity cost) before you take the plunge.

So let me state in boldface --- if there is nothing else that you think/plan/do in the interest of saving money, let it be towards the two largest expenditures that most people have --- home and car.

Paying for shelter is expensive. The general rule of thumb is not to exceed 30% of your monthly take-home pay to it. Before the Great Real Estate Collapse of 2008, the prices of houses were stratospheric, particularly right before the Collpase. Many people, devoted to the idea of buying a home, pushed the 30% rule to 50% and beyond. It was not a good idea.

Now that the real estate market has corrected itself, to put it mildly, it's extremely difficult to prove yourself financially sound enough to be considered worthy of a mortgage. So it's an ideal time to negotiate a bit more aggressively when looking at a new place to rent. Landlords are competing for a declining market, as people are hunkering down and staying put until the economy improves.

Leverage this falling market to your benefit: if you're on a month-to-month lease (and now is a good time to enter into such a thing) renegotiate better terms, then maybe think about locking that in for a time.

Also, don't forget the old bromide about the three most important criteria for real estate: location, location, location. Many people in the Bay Area felt that the only way they were able to afford the house of their dreams was to buy such a dream house two hours driving distance (one-way) and only car-commutable from their work location. Again, this is entirely a personal choice, but to my calculations, once you factor in the cost of gasoline, wear & tear on the vehicle, car insurance, and psychological wear & tear, that affordable dream home costs a lot more than the dollars paid at closing.

We are fortunate that we live in an area that not only has very good public transportation (bus and subway), but that is easily accessible from our home on foot or bicycle, and our work commutes are fewer than three miles away. So our lifestyle easily enables us to own a single car only (we could further downgrade to a car-free life by signing up with Zipcar, but this works for us now). That's a tremendous savings, which we factored into the premium price we paid for our house due to its favorable location (as opposed to living in the 'burbs and forcing us to buy another car, which my mother proposed we do).

Cars can be had for as little as a few hundred dollars up to several hundred thousand. As far as I can see, that price range all boils down to marketing. What, exactly, do you need? Some people identify with their car as an external mirror of themselves, others spend a lot of time in their cars due to long commutes, which may require certain amenities I consider superfluous, desire their car to be "cute," or want a zippy roadster or need to haul mountain bikes. All cars will get you to your desired destination.

Just remember that buying a second-hand car will save thousands of dollars...just look up the price of a 2009 car in the Kelley blue book. My accountant friend refuses to buy anything other than a used car because of the instant hit of depreciation the moment she drives a new car off the lot.

Of course, auto manufacturers have worked around that, by recognizing warranties only from the original purchaser of a car. So, maybe it's worth it to you to buy a new vehicle.

Keep in mind that thousands of dollars can be saved through thorough research, planning, and comparison-shopping on only two items that you will purchase in your life. The money you saved can realize itself again and again, if done correctly.

I freely admit that sometimes I get lost in the frugalista woods worrying over whether or not I got the best value for bulk garbanzo beans, considering the sale price this week when the entire price discrepancy may be thirty cents. So then I take a breath and realize I need to step back and see the big picture. I hope you do, too.

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