Like stepping off a cliff…
That’s how it can feel facing some of our largest life purchases. Jaw dropping anxiety accompanies thoughts of massive car payments. You start to second guess whether or not you’ll be able to handle the new mortgage.
Adding to the pressure is the fact that we often consider the largest house or most luxurious vehicle we can afford. Miraculously, we try to figure out how to shoehorn expensive monthly payments into our meager budgets.
Yes, perhaps if we eat out just a little less, or take our lunch to work every day, or skip that yearly vacation, – we just might be able to make it work!
Unfortunately, it’s just this type of thinking that got many homeowners in trouble when they bought houses too large for their budgets. In the end, they become all too familiar with the word FORECLOSURE.
So how do you know if that new car payment, new mortgage, or more expensive rental apartment is going to be manageable, or going to make you miserable?
Consider a test drive, not of the house or the car, but of the estimated monthly payment. Try it on for size. See how it feels. Can you comfortably deal with it?
Simply estimate the monthly payment for any new car, house, or other major purchase you’re considering. At the beginning of each month stash this amount into a savings account while you live on the rest of your income. Now see how easy or hard the rest of your month goes. Give it a try for at least two or three months.
Are you miserable, just barely scraping by, trying to make ends meet? Do you have to severely deprive yourself by forgoing your favorite movies, social events, and other things you enjoy? Have ramen noodles become a frequent dinner time meal?
On the other hand, perhaps you’ll discover that you can afford putting away the payment money without a major crimp in your lifestyle. Maybe all it takes is for you to cut back a little bit here or there.
Either way, the benefits of test driving your potential payments are undeniable. If you can’t handle the estimated monthly payment of a new car or home, you’ll still have the money in the bank that you tucked away during the trial period. Better yet, you’ll have averted potential financial devastation down the road.
Perhaps you discover that you can handle the extra monthly payment without severe financial strain. Again, you’ll have saved money in the bank during the trial period. This money can now be used for an even larger down payment, which in turn will lower your monthly payments and save you money on interest costs.
Either way, you win.