Despite working full-time and earning a combined annual income of $120,000, Cassie and Andrew are living paycheck to paycheck.
Making matters worse, Andrew needs a new car — the one he currently drives has been experiencing mechanical issues and he needs reliable transportation for his job. The problem? He wants to replace his old clunker with a brand new $60,000 truck.
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Meanwhile, Cassie is worried such a big purchase would not be a good decision. On top of barely getting by, the couple is currently $30,000 in debt — $22,000 in student loans and $8,000 in credit card debt — and they currently pay $2,500 a month in rent. The two are also trying to save money to buy a home of their own.
Cassie worries the monthly payments on the new truck will prevent them from saving money for a house or tackling their debt. Andrew, on the other hand, argues the payments are only $850 a month, adding that he’s tired of working so hard but not being able to spend money on the finer things in life.
Is buying this truck a wise decision?
While it’s understandable to want to enjoy the fruits of your labor, Andrew’s rationale that the monthly payment for the new truck would “only” be $850 is concerning.
Since he and Cassie have plans to buy a house — not to mention the $30,000 in debt they have to deal with — Andrew doesn’t appear to have his priorities in order. And buying a truck that costs about as much as he earns in a year is not a great way to tackle the couple’s debt or save for a house.
To prove this point, Cassie might want to sit down with Andrew and run the numbers. If they were to buy a less expensive car — one with monthly payments of, say, $425 — they would be able to use the remaining $425 to pay down debt or save it for a down payment on a home. With this option, they’d be able to save $5,100 in a year, which would come out to $30,600 saved over six years, which is the payment period for the truck Andrew wants to buy.
Cassie should also point out that the expense of running and insuring the truck Andrew wants will cost significantly more than the cost of gas, maintenance and insurance for a smaller car, like the one he currently drives. While Andrew thinks $850 a month seems affordable, he might be singing a different tune when the monthly payments for the truck and its insurance kick in.
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Reaching a compromise
Cassie and Andrew should instead look for a compromise that suits their financial needs. Andrew will likely need a new vehicle soon, and it’s understandable that he wants to buy something that he will enjoy. However, choosing a truck that they can’t afford could hurt both of them in the short and long term.
Since Cassie and Andrew are still carrying student debt, as well as high-interest credit card debt, the first step in their financial plan needs to be focused on paying down these debts as quickly as possible. The longer they are in debt, the more they stand to lose to interest payments every month.
Another priority should be building an emergency fund. Without one, this couple might be in a more precarious financial situation than Andrew may realize. If either Cassie or Andrew were to suddenly lose their job or become unable to work, their rent payments, debt load and that $850-a-month truck loan would put them at risk of financial disaster.
Laying out a financial plan that gets them debt-free and saving for an emergency fund should be the first step that Cassie and Andrew take, and that could mean having to compromise on a new car, at least for now.
If Andrew’s current car can be repaired at a reasonable cost to keep it running safely for another year, the couple should consider this option. This would allow them to save the $850 a month that they’d spend on the new truck, which means they could save $10,200 for the year.
After that, the couple can reevaluate their car situation and potentially purchase a less expensive vehicle, which could give them the savings to start tackling their student debt while stashing a few bucks away for their emergency fund.
Financial compatibility
An underlying issue for Cassie and Andrew may be their financial compatibility — or in this case, a potential lack thereof.
Finances are an important issue in a long-term relationship, and not seeing eye-to-eye on money matters can lead to major strife. According to Ramsey Solutions, money problems are the number one issue that couples fight over, and the second leading cause of divorce. (1)
Having open, honest and regular conversations about money is key in a healthy relationship. For Cassie and Andrew, they could benefit from a conversation about the new truck and their financial goals to try to get on the same page. With any luck, Cassie may be able to convince Andrew that a six-year, $850-a-month commitment would be detrimental to their financial goals.
A relationship dynamic where one person is a spender while the other is a saver is a common cause of tension. The differences in perspectives can be overcome, but it requires that both parties are willing to have tough conversations, listen to each other’s concerns and work toward a compromise.
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Ramsey Solutions (1)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.