A common mistake is made if we don't consider the financial realities of predictable life changes. For example, young people often make long-term purchase commitments based on their finances while living with their parents without taking into account the cost of not living with their parents. An eighteen year-old signing a five year contract to purchase a car will be twenty-three when the car is finally paid off - provided they maintain the contractual payment schedule. That schedule may be difficult to maintain if rent and utilities become additional costs, which is often the case for people between eighteen and twenty-something. The best strategy to avoid, or minimize, this problem is to use all excess funds to reduce the balance of a loan ahead of schedule while those funds are still excess!

I used the example not to attribute this problem only to young people, but rather to give an example when the financial impact of a predictable event deserves consideration. It doesn't matter whether the predictable event is getting married or divorced, having children, increased health expenses, or retirement: unless the realistic financial impact is taken into account, you will be lucky to be able make substantial sacrifices to maintain the commitment. If you aren't so lucky, it will make it difficult to buy the vehicle that you may have been able to pay off and own.

Another common mistake people make is purchasing the payment rather than the vehicle. Certainly we should all consider the payment in our budgets, but it isn't the only consideration we should make. This often leads people to purchase lower priced new cars instead of substantial used cars, and paying too much for the vehicle whether it's new or used. This mistake is avoided by looking at the total cost for the vehicle, rather than just the payment and starting price. Keep in mind that a $300 payment will cost you $3,600 more than a $300 payment, if the contract calls for an extra year of $300 payments!

Another mistake is upgrading by trading in a vehicle in which there is negative equity. Sometimes people rationalize it saying it's a reward, and other times people rationalize it because the vehicle they own now has problems. I'm not suggesting that people shouldn't reward themselves, nor that they should not they replace vehicles with problems; I am suggesting that people should not use those reasons as excuses to make extremely poor decisions. You will give yourself a far greater reward if you don't spend your vacation and retirement driving a better vehicle that is not worth what is owed on it. You will also find it easier to deal with a vehicle that has problems if you don't owe money on it. There may be a very real need to replace a problem vehicle with negative equity; that justifies replacement, but upgrading requires one to rationalize!

The last problem I'll talk about is paying too little for a vehicle. Though it sounds preposterous, you should be very wary of this if you find yourself figuring out in which order you'll work the problems out once you get the vehicle! There are people who deal effectively with project vehicles, but most people don't. Unless you're down to your last few bucks and are really buying a place to sleep, a well maintained vehicle is usually a far better deal than one with problems caused by deferred maintenance or major repairs. Whether you are considering two vehicles that will cost the same, or considering two like vehicles at different prices, it will almost always cost less in the long run to buy the one that's been maintained the best!

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