Making large purchases takes planning and time, Grownups. Blogger David Auten explains how he and his partner, John, buy what they want—without breaking their bank account.

With age comes wisdom, including how we spend and earn money. John and I learned that lesson the hard way when we had to dig our way out of $51,000 in credit card debt. One thing we did that wrecked our credit was we bought small the wrong way—meaning we racked up credit card debt with small purchases like lattes, or a pair of jeans here and there. When we paid off our credit card debt and were able to buy big, we did some soul searching and a lot of research to make sure we learned from the wisdom of others.

The prevailing thought today is that if you can afford the monthly payment, you can afford the purchase. Thus everything from homes, cars, cell phones, and vacations are sold on small monthly payments to give the impression that the overall purchase is inexpensive.

For example, when John bought our latest iPhones, the salesperson encouraged him to use their payment plan. He declined and said he had the cash to pay for it. She again suggested the payment plan because we could get a new phone in just 18 months rather than the standard two years. John did the math: paying cash with the two-year contract would cost $300 per phone. Paying via financing, each phone would cost nearly $630—more than twice as much as paying cash.

The Dream Car

I have wanted an Audi for years. In 2000, I had an Audi A4 and loved it. I gave that car up when I went to college. Since then, I’ve driven mediocre cars.

Conventional wisdom says finance a brand new car at 3 to 4 percent, via lease or purchase. The other option is buy used, but pay the 4 to 5 percent financing. In both cases, you make monthly payments.

With financing, everyone gets what they want with one caveat:

The buyer gets the payment plan that cost thousands of dollars in addition to the purchase price.

We have a friend who has always leased Audis, about 13 years in total. In that time, she has paid $600 to $800 a month for her cars, yet has never owned one. That is roughly $110,000 on cars over the past 13 years.

I decided to go a different route: no financing for a used car. In preparation, I figured out what my monthly payment would be, and have been saving $700 a month for the past year and a half. I’m now two-thirds of the way to the amount I need for my car. My car will be a new-to-me car rather than brand new, saving me thousands of dollars in depreciation. Plus, since I am not financing my car, I will save estimated $1,415. That’s vacation money!

The Big House of the Poor

When John and I started our search for a house, the country was at the height of the housing boom. Everyone was buying big. One real estate agent, without even knowing our income, suggested that we do an interest-only loan to buy a $950,000 house. Our own agent suggested we buy a house priced at five times our income. This worried us.

Everyone was buying big, but then were house poor. They were spending most of their income on their mortgage. They were relying on home prices rising to get ahead. When the market went south, people were losing their jobs and homes. They couldn’t afford the payment. John and I worked for the same company; we worried that one or both of us could lose our jobs. We wanted to be certain that if we did, we could afford to keep our home.

We decided to buy a condo that was only one-and-a-half times our income, which meant one paycheck could pay the mortgage. Our agent did not like the decision, but it was the best one for us. We did buy around the time the market turned, so we did get somewhat of a deal, but we were financially underwater for two years afterwards. We’d love to have a million-dollar home, but we love that we can have more income because our house payment doesn’t consume it all.

Did someone say vacation?

Vacations

As you can see, John and I have made some calculated decisions on how and when we buy big. We decided that travel and retirement are our two main life goals. Since purchasing our condo and paying off our debt, we’ve vacationed in Australia and New Zealand for 30 days, spent two weeks in Ibiza and Sitges in Spain, and also visited London. We’ve been to Mexico twice and to more than 10 U.S. states for various vacations.

When we decided to go to Australia and New Zealand, we planned a year and a half in advance. Why? Because we could then book the flight using airline miles and fly for free. Then we set up an account and saved $7,200 over that time—$400 a month—and added our bonuses that were paid out while we were on the trip. In addition to our saving discipline, we both had small tax returns that came a few weeks after returning to the States—allowing us to return home debt-free.

Retirement

Considering our retirement as a long-term large purchase helps us to mentally justify putting the money away each month. When John and I got out of debt, we had a combined retirement savings of less than $100,000—today we have $500,000 in retirement savings. We have put away at least 10 percent of our income each year—right now John is putting up to 25 percent. The time our money has spent in the market via our IRAs and 401ks has helped, but so has our consistent contributions.

Our goal is to have a minimum $1.5 million saved for our retirement. We know that several things will get us there: spending less, saving more, having zero debt, and becoming mortgage-free. We are on track to have all of that in about 12 years. All of this we attribute to our ability to make large purchases.

Below are three suggestions for buying big.

  1. Give it Time: A rushed purchase means an expensive purchase. Plan 12 to 18 months in advance for what you will want to buy and shop around for opportunities to save.
  2. Adjust Your Budget: Your first payment will be a shock to your budget. Plan ahead and set aside the money for your payment in advance—when your payment is withdrawn, the money will already be there to cover it.
  3. Buck Conventional Wisdom: Research your options—there are more than you think. Find out what is best for you.

How will you buy big, Grownups?

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Read more stories from David Auten and John Schneider at DebtFreeGuys.com.

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