I owe! I owe! It’s off to work I go!

I saw this bumper sticker on the back of a newer pickup. That pickup had to cost at least $30,000 and that was for a regular cab pickup - not even a club cab! I’m sure that the guy driving the truck liked it, but I also bet he had a nice sized payment!

Most of us are in the same boat. Very few people nowdays don’t have vehicle payments. I don’t know the exact figures but I would guess that most people change vehicles every 3 or 4 years. Are vehicles a good investment? NO! It is a fact that the value of the vehicle goes down thousands of dollars as soon as you drive it off the lot. You will never get back what you paid for it. But we need transportation don’t we? When is it OK to borrow money?

Our lesson tells us that 3 criteria must be met in order for it to be permissible to owe money. All 3 must be met.

1. The item purchased is an asset with the potential to appreciate or to produce an income.
2. The value of the item equals or exceeds the amount owed against it.
3. the debt is not so large that repayment puts undue strain on the budget.

Does a vehicle meet those criteria? No - unless it is a collectible or something and then may you would be able to get out of it what you paid for. A good financial plan would suggest purchasing a good, economical used vehicle for cash.

A house could meet the criteria. Most of the time, a house will appreciate in value, you normally borrow less than the house is worth and the payment isn’t a strain on your budget. Dave Ramsey, “Mr. No Debt”, says that your house payment should never be more than 1/4 of your takehome pay.

A budget is a good place to start. A budget will help restrain the impulse purchases. You will know what you have and what you don’t. If you don’t have a budget, how would you know how much strain a purchase will put on you? It will help you plan. We’ll get into budget making later in our lesson.

Have a good weekend. See you on Sunday!