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Dave Says: Why Borrow for a House But Not for a Car?

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Dear Dave,

My wife and I are on Baby Step 3 of your plan. We’re also saving up to buy a car with cash. We’re about $3,000 away from our goal, but now my wife wants to go ahead and finance the rest. She has started wondering what the difference is in borrowing to buy a car and borrowing to buy a house.

Lex


Dear Lex,

This is a good question. It sounds like you guys have made good progress, but now one of you is running out of steam. That’s okay. Getting out of debt and staying out of debt can be a tough road.

For one thing, cars go down in value. The second thing is I don’t like debt of any kind. I don’t really like borrowing for a house even, but I tolerate it as long as you use a 15-year, fixed-rate mortgage with payments that are no more than a fourth of your take-home pay. I mean, it’s a much larger purchase. You can get a great car for $15,000 to $20,000 dollars. Depending on where you live, a good home can cost you 10 times that or more.

Still, the best way to build wealth and have a high-quality financial life is to not be in debt. You’re never going to win with money in the long term if you can’t learn to delay pleasure. That’s the bottom line. Personal finance is about controlling the person you see when you look in the mirror.

Every one of us has that little four-year-old kid inside, a little kid whose name is Immaturity, and he or she wants what they want right now. What your wife is asking is a normal request, but it’s also a sign that we all have to address that little kid that’s inside us once in a while — and tell that kid no!

—Dave