A lot of financial decisions can be simplified by using a Cash Flow Plan and taking an objective look at how much a household of our size and income can afford to spend on this or that (see my Recommended Spending Guidelines, Cash Flow Plan and Cash Flow Tracker forms, along with the newly revised Budget Quick Start Guide).

However, using money well requires more than sound economics.

Beyond the Spreadsheet

For anyone whose faith is at the center of his or her life, the overarching financial goal isn’t just living within our means.  It’s living a life of impact, which is what makes the words from 1 Corinthians 10:23-24 so challenging:

“Everything is permissible”—but not everything is beneficial.  “Everything is permissible”—but not everything is constructive.  Nobody should seek his own good, but the good of others. – 1 Corinthians 10:23-24

If we can afford to buy a huge, lavish home, should we?  Or, could living in such a home do something to our hearts?  Could it put some distance between other people and us?  On the other hand, could it be a blessing to others?  Could it enable us to have a positive impact on people we might not otherwise have an opportunity to interact with?

If we can afford to buy an expensive vehicle that turns heads, should we?  Or, could the different way people treat us because of our vehicle impact the way we view ourselves?  Could it negatively impact how others in our sphere of influence use money?  On the other hand, could such a vehicle be part of the “everything” God provides “for our enjoyment” (1 Timothy 6:17)?

It’s good to ask such questions, but it’s best not to answer them too quickly.

WWJD?

In Chip and Dan Heath’s excellent book, Switch, which is about how to bring about a desired change in our lives, one of their most interesting findings has to do with how identity influences our decision-making.  They use the example of a chemistry professor:

Imagine…you had a lucrative opportunity to consult on the toxicity study of a new drug for a big pharmaceutical company.  From a consequences point of view, the decision to accept the job would be a no-brainer—the work might pay far more than your university salary.  But from an identity point of view, the decision to accept the job would seem less clear-cut.  You’d wonder what strings were attached, what subtle compromises you’d have to make to please the client.  You’d wonder, “What would a scientist like me do in this situation?

That question is so simple.  And so helpful.

When making financial decisions, we would do well to stop and ask, “What would a person of faith do in this situation?”  And, assuming it’s a permissible decision, “How might it impact the good of others?”

Questioning Financial Decisions Large and Small

It’s especially helpful to ask such questions when setting the overall financial direction of our household, and when making big decisions like what type of home or car to buy.

But what about other decisions, like choosing a brand of laundry detergent?  Do we really need to wrestle with that?  I mean, everyone knows that a good, frugal person of faith buys what’s on sale, right? (See The Case Against Frugality) Or, could it be best to pay a little more for a brand that’s more environmentally friendly?  Should we avoid products made in countries known for their human rights abuses?

I can’t tell you exactly what type of home or car to buy, or which brand of laundry detergent you should choose.  But I’m confident that asking questions based on 1 Corinthians 10:23-24 will lead to benefits that extend far beyond the bottom line.

How has the distinction between what’s permissible and what’s beneficial or constructive impacted some of your financial decisions?  How might it impact future decisions?

My first post each month explores what the Bible has to say about money and material things.  Here’s why.

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With a house, just think of the mortgage, the property taxes, and the insurance.  With a vehicle, even if you don’t have a loan, just think of today’s mortgage-like fuel expenses and the insurance.

But wait.  I missed something.  Did you notice?

I missed maintenance.  Lots of people do.  In fact, as I’ve reviewed countless spending plans over the years, failing to plan for the maintenance costs of homes and vehicles is one of the most common mistakes I’ve seen.

The Dangers of Not Maintaining Maintenance Budgets

The first problem with not planning for maintenance expenses is that you might not keep up with basic maintenance.  With no money budgeted for oil changes, you’ll let it go.  Until you hear a strange banging noise coming from under the hood.   What I’ve discovered is the louder the bang, the bigger the bill.

The second problem is that when unavoidable major expenses come up, like the need to replace a broken dishwasher that dates back to a time when olive green made a positive decorating statement in the kitchen, you’ll have to go into debt to pay the bill.

How Much to Budget for Maintenance

In my Recommended Spending Guidelines, you’ll see that I combined home maintenance with utilities and I grouped vehicle maintenance with vehicle insurance, fuel, and fees.

Here’s some more specific guidance.  While maintenance costs vary, depending on the age and condition of your home and car, a decent average is to assume vehicle maintenance expenses of $75 per month per vehicle and at least $100 per month in home maintenance.  There are many months when you won’t spend any of that, but there are others when you’ll spend a lot more.

With our home, I’ve found that budgeting $100 a month is what it takes to keep up with the basics – furnace filters, staining/weatherproofing the deck, the daredevil who clears our gutters of leaves each fall.

With vehicle maintenance, there are plenty of months when we don’t spend anywhere close to $75.  But throw in the need for new tires every five or six years, the occasional major tune-up, and replacing the side view mirror that we scraped off backing out of our own driveway, and $900 per year comes out about right.

Where to Keep Maintenance Money

Maintenance costs are periodic expenses.  You won’t usually spend the full budgeted amount every month, but you will spend it by the time the year is over.  So, automatically transfer the budgeted amount each month into a separate savings account.  That way, the money will be there when you need it.

How much do you budget for vehicle and home maintenance?

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The belief that we are what we drive, coupled with the auto industry’s heavy use of planned obsolescence—the yearly rollout of new models with “must-have” new features—often leaves us on the vehicle financing treadmill.

We tend to build short-term relationships with our vehicles and long-term relationships with our vehicles’ loan officers.

A Better Way to Buy Cars

A better approach to buying cars is to build long-term relationships with our vehicles and send our vehicles’ loan officers packing. In fact, as you’ll see in my Recommended Spending Guidelines, not having a vehicle payment is an essential part of building a financial life that works.

I recommend keeping a car for at least ten years, preferably longer. The financial freedom that brings is far more beneficial than the short-lived thrill of driving a car with temperature-controlled cup holders. Here are some guidelines for how to break the cycle of financing cars.

1. Buy, don’t lease. Although you may pay less each month for a leased car than you do for a car you buy and finance, you won’t own anything at the end of the lease. You’ll just have to start making payments on another vehicle. In order to have the margin to be generous, save and invest, it helps a lot to have no monthly car payment.

2. If you’re currently making payments on a vehicle loan, keep making those payments even after your vehicle is paid off. Just send them to a savings account instead of your lender. If you can afford the payment today, you can afford it once the loan is paid off.

Then keep that vehicle for at least another five years, and when your vehicle is ready to be replaced you should have plenty of money to buy your next one with cash.

3. When it comes time to get another vehicle, it’s usually best to go for a well-maintained used car (but not always). Even vehicles used by dealers for test drives or loaners will be less expensive than a brand-new car. But vehicles that are one to two years old are where the real deals can be found; they often cost 30 to 40 percent less than the original price.

Still, I’ve loosened up on this one a little bit in recent years.  If you’re paying cash, planning to keep your vehicle for 10 years or more, and you don’t opt for all the high margin extras, buying new may make sense.

4. When deciding which car to buy, choose one known for reliability. Consumer Reports lists its picks for the best used vehicles that cost less than $20,000 for free on its site.

5. Consider all of the costs. Some cars are more expensive than others to insure and maintain. When the exhaust system goes out on a dual-exhaust car, for example, it’s going to cost a lot more than it would on a car with a single-exhaust system.

Edmunds.com has a helpful True Cost to Own calculator that enables you to compare vehicles going back to 2006 based on the costs of fuel, insurance, maintenance, replacement parts, and depreciation. Call your insurance agent to get quotes on a few cars you’re considering as a point of comparison to what the Edmunds web site tells you. You can run a separate fuel economy comparison at Fueleconomy.gov.

There are certainly no moral prohibitions against heated seats or headlight wipers. However, moving through life without the ball and chain of a vehicle payment shackled to your leg will go a long way toward helping you live with financial freedom.  Your car may not be able to parallel park itself, but you’ll get over that.

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That got me thinking about the best deals I’ve ever gotten, and three immediately came to mind.

The Health Club That Never Costs More

First was my Bally’s health club membership that I signed up for when I was in my mid 20s.  While I had to pay an initiation fee of a couple hundred dollars, the annual fee from that point on was fixed at $60.  I’m sure health clubs assume most people will quit after just a short time, so they make their money on the initiation fee.  But I’ve kept the membership, and at $60 a year, it’s a bargain.  While I prefer to run outside, we live in Chicago, so I go to the club in the winter to run on its treadmills.  Even though I use the club just four months a year, it’s still well worth the price.

Lesson learned? If something comes with an upfront fee, make sure you’re planning to stick with it for the long haul.

The Boots That Never Wear Out

Second on my list is Timberland boots.  I’ve had two pair for over 10 years.  They’ve held up amazingly well and their timeless style makes them still look just fine.  One pair is heavy duty, which I wear to shovel our driveway in the winter and trudge through the worst weather conditions.  The other is more of a traditional pair of hiking boots that I wear more often.

Lesson learned? Don’t go for the cheapest product available; buy quality products when they’re on sale, and whenever possible, go for styles that are not likely to look out of date next year.

The Car That Never Goes Out of Warranty

The third deal that came to mind was a Honda Accord I bought before Jude and I met.  Honda had a great reputation, and that car showed me why.  It was amazingly reliable and inexpensive to maintain.  By the time Jude and I started dating, it had over 100,000 miles on it.

While the car had been great mechanically, I remember feeling a little embarrassed at the fact that the paint on the roof and hood was starting to fade, so I went to a few paint shops to find out what it would cost to touch it up.  One of the shop owners surprised me by recommending that I contact Honda to see if the company would cover the cost because the paint seemed to have been defective.  I thought there would be little chance of that since the car was so old and had so many miles on it, but sure enough, Honda took responsibility and paid the full price to have the roof and hood repainted.

Lesson learned? One of the best ways to choose a vehicle is to find out what other people think of the cars or trucks they own.  Consumer Reports issues an annual reliability survey based on the feedback of over a million vehicle owners.  While you’ll find a lot of free information on Consumer Reports’ web site, I’ve also found our annual online subscription to be a good deal at $26.

What are some of the best deals you’ve ever gotten and what were the lessons learned?  Let me know by leaving a comment below.  On a future post, we’ll look at the worst deals ever.

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The author named four of his own financial regrets: financing a car, taking out too much in student loans, not getting started with investing earlier, and not delaying grad school until he could better afford the tuition.

I, too, regret financing a car when I was in my mid 20s.  That came about because of another regret: not taking care of my previous car.  I ruined the engine by not keeping up with some very basic maintenance and that led to my need for another car, which I foolishly financed.  I can also relate the Watson’s regret about not investing earlier.  I was clueless about saving and investing until I went through a true financial crash and burn.

The point of taking stock of past mistakes is not to beat ourselves up about them, but to learn from them.  I kept the car that I financed until it had well over 100,000 miles on it, making sure to keep up with all of the recommended maintenance, as I have with every car since.

What about you?  What are some of your greatest financial regrets?  And how have you used those mistakes for good? 

Of course, this way of thinking about a vehicle’s true cost doesn’t just apply to luxury rides.  Edmunds.com offers a free online calculator where you can estimate the true cost to own for new cars or used cars going back to the 2005 model year.  Looking to buy a 2010 vehicle?  Edmunds has crunched the numbers to show you which vehicle in each style and price segment it estimates will cost you the least over the next five years.

An even more radical way to keep your household’s vehicle costs down is to reconsider how many vehicles your family really needs.  We went from two vehicles to one a couple of years ago.  It took a little getting used to, but the savings on insurance, maintenance, and other costs have made the adjustment easier and easier.  I recently did some cash flow coaching with two families and in both cases suggested switching from two vehicles to one.  One family has already made the change; the other is in the process of selling their second car.

And of course, keep your vehicles as long as they’re safe to drive.  By putting a relatively small amount of money into savings each month that’s earmarked for your next car, you’ll be able to buy your cars with cash.  And believe me, having lived with car payments and without car payments, living without car payments is better.

How have you kept your vehicle expenses down?

While developing a set of detailed recommended spending plans for various size households at various incomes, it became clear to me that in order to live in financial freedom it’s essential to avoid financing vehicles.

MSN recently pointed out that most of today’s vehicles should be able to make it to 250,000 miles if you simply keep up with their manufacturer’s recommended maintenance schedules. CNN.com profiled 10 high-mileage vehicles that are still going strong, including one with over 1 million miles.

It isn’t even the mileage that’s so important; it’s how long you keep your vehicle.  For someone who doesn’t drive very much, keeping their vehicles for 10 years should be easy; keeping them for 15 or even 20 years should be well within reason.  And the longer you keep your vehicles, the less you will pay for vehicles over your lifetime.

If you currently have a vehicle loan, in order to break the financing cycle commit today to keeping that car or truck at least 10 years.  Once it’s paid off, keep making the payments.  Just send them to a savings account instead of your finance company.  Five years after paying off your current vehicle, you should have plenty of money to buy your next vehicle with cash.

When you’re ready to buy, check Consumer Reports for its recommendations on the most reliable vehicles (you can get their picks for best used cars under $20,000 without subscribing).  Also use the True Cost to Own tool at Edmunds.com to compare some of the vehicles you’re considering based on their insurance, fuel, maintenance, and other costs.

As much as I’ve tried, I have never owned a car that made it to 200,000 miles, but I have kept the last two vehicles for over 10 years.  A Honda Accord I once owned made it to 190,000 miles, but then developed too many cost-prohibitive repair problems.  The Toyota Camry my wife brought into our marriage made it to 165,000 miles, at which point a front spring broke, which caused too much other damage to make it worth repairing.

It’s worth noting that a mechanic told me if I had been on the highway when the Camry’s spring broke, instead of a parking lot where it actually happened, I would have lost control of the car.  So, everyone with a high mileage car should be especially vigilant about asking their mechanic to check for safety issues.

By the way, the recommended spending plans I developed for one-, two-, three-, and four-person households with incomes ranging from  $30,000 to $150,000 are in the appendix of the “Money, Purpose, Joy Personal Workbook,” which Amazon is currently offering at a great price.

If you have a high mileage car or truck, what is it and what have you done to keep it running so long?

When I wrote “Money, Purpose, Joy,” I spent a lot of time figuring out how much people can afford to spend on food, clothing, and everything else. The Money, Purpose, Joy workbook contains detailed recommended spending plans for four different sized households across nine income categories. The conclusion that jumped off the spreadsheet was that if we are to live the generous lives we were designed to live, save adequately, and live with margin and peace of mind, it’s crucial that we follow two guidelines. First, keep the combination of our mortgage, property taxes, and homeowner’s insurance to 25 percent of our monthly gross income or less. And second, carry no other debt – including vehicle debt. Hanging on to vehicles long enough to pay them off and then save enough to buy our next vehicle with cash is one of the most essential keys to wise money management.

The optimist in me would like to believe that the recession will lead to lasting positive changes in how people use money. However, a recent article dampened my optimism. It noted that sales of gas-hogging SUVs are already beginning to rebound.

I do think one of the great opportunities of the recession is to rethink many of our money assumptions. Do we really “need” the number of cars that each household owns? Are there more cost-effective ways to take vacations that might be just as fun? What money-related changes have that you believe will be permanent?

A low price is not always synonymous with the best deal, especially if a more expensive item will last much longer. I have a pair of Timberland boots that I’ve had for well over 10 years with no sign of wearing out. My wife and I have also had good experiences with Honda and Toyota vehicles. I drove a Honda until it had over 180,000 miles on it and we kept a Toyota until had over 160,000 miles.

I will say, though, that a potential danger in keeping vehicles a long time is safety. We kept up with all the regular maintenance on the Toyota, and even used a Toyota dealer for all repairs. Still, the reason we had to part with the car is that a spring broke in the front suspension while I was driving through a parking lot, which then led to other cost prohibitive front-end damage. A mechanic told me that had it happened on the highway I probably would have lost control of the car. So, if you’re going to hang on to an old car, be extra vigilant about having mechanics check for safety-related issues.

What products have you discovered that stand the test of time? Please let me know.