When the weather starts to warm up and the grass begins to turn green, we all start to think of summer. One of the first thoughts of summer could be, “Can I afford that new (FILL IN YOUR FAVORITE ITEM HERE)?”. After all, warm weather, vacations, and a hard first part of the year working, what is wrong with a reward?
You might be considering a new large, summer item, a recreational vehicle, or looking at used boat loans to reward you and your family for good financial choices.
Here are eight tips to consider before getting that expensive summer fun item, new boat, jet ski, or convertible. These tips will help determine if it is your best financial choice this summer.
Talk To Your Spouse/Partner - Before beginning any major financial consideration, your first steps should be to talk to your spouse and partner. Talking to your spouse should not be the last step! The entire point of this exercise is to see if you agree with your financial priorities. Is this important? Do you both want that same thing? A boat or an RV? These are simple concepts, but you both have to agree that this is a financial priority now, how much you are willing to spend, and what you want to buy.
How Is The Rest of My Financial Plan? - When you both agree this is a financial priority, then you need to look at how the rest of my financial plan is performing. Do we have an emergency fund? Are the credit cards paid off? Do we have savings to pay for the item? Are we investing enough for retirement? Do we have any other loans to be paid off? Before you can look at a new financial obligation, you have to look at paying and meeting your existing financial obligations.
Do I Have Any Other Impending Financial Priorities? Once you examine your current financial state, then look to the immediate future. The purchase of a used boat is vastly different if you have a child finishing college vs. starting college. Do you have any needed household repairs coming up? Do you have a college degree that you are finishing? Is your retirement plan in good shape? These are critical financial steps to look at your financial present and financial future before taking on a financial obligation.
How Often Can I Use The New Item This Summer? This is actually a point that most couples will argue about the most. For example, one spouse says, “If we get a boat, we will go to the lake every weekend!” The other spouse then states, “We will? What about the softball tournament in June? When will we cut the lawn?” This is where the calendar needs to come out and determine how often you can actually use the item over the summer. Using an item two or three times is different than 12 times. Use the calendar, the kids’ activity schedule, and your vacations to determine a realistic number of times to use the item.
What Is The Total Cost As a % of Our Monthly Spending? Determining the total cost of the item as a percentage of your total monthly spending is a quick step to look at its broad financial impact. For example, if the item will only cost 25% of your usual monthly budget, then this looks easier to do. If your item cost 600% of your monthly expenses (6 months of expenses), then this may need a closer financial look. The reason to do this exercise is to put it in perspective. It is easy to have financial discussions with the words, “It’s Only $XX, XXX.” When it fact if it is 300% (3 months) of expenses, then it is a different conversation. There are lots of ways to do these calculations; the point of these calculations is to create conversation, financial analysis, and financial prioritization.
What Is The Total Cost of Ownership? Once you have decided to get an item, the Total Cost of Ownership (TCO) is far more that the item itself. Insurance, maintenance & repairs, where to store the item, licenses, fuel, accessories, trailers, and more expenses. These should not be a show stopper, but you should plan for and budget how to meet all of these expenses and determine how much they will change annually. Once you have a Total Cost of Ownership (TCO), then determine how it will fit into your annual budget. Finally, looking at various loans and other financial ways to pay should be a central part of the Total Cost of Ownership. Interest payments as well as insurance will be a major influence in the TCO for the item.
Is Renting An Option? If you really want a boat or an RV, but realize from step #4, that you can only use the item 3-4 times a summer, then renting may be a great option. The cost of renting will always be more expensive than a monthly payment, but one-time renting should always be far, far less expensive that your annual Total Cost of Ownership. In addition, for example renting a boat, is far easier because you just drive to the lake, get the boat, put gas in it, and then return it. There is not talk of storing the boat in the winter, trailers, etc. Renting is also a good first step to a purchase if you are deciding between two items and want to try each first before deciding.
Save For Next Year? Finally, after going through this entire article, you may decide that this year is not the year to buy a summer fun item. OK. Maybe not, but you can make that a good financial decision. End of the season sales are a great time to look, you can rent and decide which exact item that you want, and you can create a new annual budget that has your Total Cost of Ownership for the new item in your monthly spending. You can also use this time to create an aggressive savings plan so you can pay cash and not use a loan.
Purchasing an item for summer fun from a jet ski to a canoe to a sailboat is a major financial decision. Creating an in-depth plan with lots of family discussions, creating an annual budget with Total Cost of Ownership, and determining how often you can actually use an item in the summer is a great financial decision. Have a great summer, be safe, and have fun!
How Did You Deal With The Challenge of Buying a Summer Fun Item? What Did You Do? Give your tips to make it easier for other members.
About the Blogger:
Chad Storlie is a Retired US Army Officer, the author of Combat Leader to Corporate Leader and has published 200 articles in 100 publications on career, business, strategy, education, financial planning, and national security topics. Chad excels as an author, mentor, speaker, and teacher showing business leaders and military veterans how military skills make lives, careers, and businesses better. Chad is an adjunct Professor of Marketing at Creighton University. Chad has a BA from Northwestern University and an MBA from Georgetown University. Follow Chad @CombatToCorp and www.CombatToCorporate.com.