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Household Finances Buying new cars is bad personal finance, but I’m OK with that

New cars are a big, honking waste of money. That’s personal-finance-101 stuff.

I figure that my wife and I have bought eight new vehicles since we were married 27 years ago, and we’re not done yet. What gives?

No one lives a life of personal-finance perfection, nor should they. You just need to get the basics right, like limiting debt and saving on a rock-steady basis through the decades. Within those guidelines, there’s room for a splurge or two, including new cars.

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You’ll not find a better rant against buying new cars than this one from David Bach, the mega-selling U.S. personal-finance guy who wrote The Automatic Millionaire. “Nothing you will do in your lifetime, realistically, will waste more money than buying a new car,” he says. The underlying assumption here is that people are borrowing money to buy an asset that depreciates 20 to 30 per cent in the first 12 months. Mr. Bach suggests you buy a car coming off a two- or three-year lease instead.

There’s no question that people spend too much money on cars these days. But it is possible to buy new and not blow up your household budget if you stay within a tight budget and keep cars for a long time. My personal rules are that payments must be no higher than $400 per month and loan terms should be set at five years, max, with a goal of paying the loan offer sooner.

We currently have a 10-year old vehicle and one that is 18 months old. At some point in the next few years, we might well buy yet another new car. It’s a splurge we can afford because we limit debt and save without fail.

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Rob’s personal finance reading list…

The instant pot is worth a shot

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In case you’re late to the Instant Pot story, this is a device that has built a huge following because it can do so many things – slow cooking, steaming, stewing and such. Sounds like a lot of value for $100 to $250, right? After using her Instant Pot for four years, one woman declares herself a “huge fan.” Chatelaine tested the Instant Pot and also came away impressed.

Should you pay for anti-virus software?

The HowToSaveMoney blog looks at the free versions of various anti-virus software and discusses whether they’re good enough to protect your computer.

Stop checking your brokerage account online, OK?

An investing writer suggests you stop looking at your investments online and instead go back to monthly paper statements. This will prevent you from getting too much negative feedback about your investments and then making bad decisions like selling in a market decline.

A housing tax trap

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An expert on estate law explains the tax surprise that emerged when parents left their house to their three sons.

Today’s financial tool

Looking for a financial planner or investment adviser? SeekAdvisor is a directory of advisers that you can search by location or services offered, including fee-for-service planners (flat or hourly fee, no products sold). You can also specify your household assets to ensure you find a firm that caters to your particular segment of the market.

Ask Rob

Q: I’m in my mid-twenties and have been quite diligent on savings, with a nest egg now in six figures. However, I’m thinking of going back to school to get a graduate degree (potentially an MBA in the United States), and I’m wondering how to think about paying for school. I could probably pay for most of it upfront. The money is currently invested in registered and non-registered accounts in index-fund ETFs (all equities). Is it better to withdraw from the TFSA and non-registered account to pay for school (to avoid interest charges and going into debt)? Or should I leave it alone and work to pay off the debt once I graduate?

A: You’ve done an amazing job of saving, and that puts you in the fortunate position of being able to pay for your MBA without taking on debt. You might earn a return that exceeds the interest rate on your debt if you leave your investments intact, but that’s speculative. Meanwhile, the MBA you graduate with sounds like a great way to enhance your earning capability. Add your obvious saving and investing savvy, and it looks quite probable that you’ll soon have a six-figure investment portfolio again. One final note: If you’re definitely going to use your investments to pay your tuition, get the money into a high-interest savings account as soon as possible to protect it against stock market declines.

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Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.

What I’ve been writing about

  • We’re treating our pets like people, and that’s expensive
  • How owning beats renting for the downsizing boomer (for Globe Unlimited subscribers)
  • CRA makes steady progress in reducing the horribleness of filing your taxes (for Globe Unlimited subscribers)

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