During a recent conversation with a few friends, one of them posed the question: “Why don’t I get to drive a Range Rover”? In Southern California, RRs are a prominent form of transportation and seem to be around every corner. My friend is a successful attorney with dual household income yet, she doesn’t feel like she can afford to drive a Range Rover. It was a good question and one that I would argue many OC natives have asked themselves.
So, how does everyone do it? Unfortunately for some, the decision is based solely on cash flow. But, before allocating your extra reserves to the limited addition leather interior, make sure you have passed these other stops on the fiscally responsible route to the dealership:
#1. Cover Your Essentials
I recommend covering your essential expenses (i.e. housing, insurance, transportation, utilities, food, etc) with 50% of your take-home pay. This helps ensure that you are living well within your means and leaves room for “non-negotiables” and “stuff.”
#2. Cover the “Non-Negotiables”
Once your essentials are covered, begin checking off what I refer to as the “non-negotiables.” In order of importance, I suggest: paying off bad debt, establishing an emergency fund, budgeting for term insurance, and saving for retirement and your home.
#3. Set Priorities for the “Other Stuff”
After the essentials and non-negotiables, decisions need to be made that can be difficult. “Other Stuff” may include fully funding college, buying a second home, retiring earlier, or yes, a pristine white Range Rover with limo tint. Careful though…you should proceed with caution when passing this stop. The reality is, most of these decisions will come with a trade off. The challenge in making these decisions is two-fold:
First, the true cost of a choice may not be easily calculated without the assistance of a professional. What if I told you that buying a Range Rover may mean delaying retirement for two years? Don’t believe me? Assuming the same down payment, term and rate on a 2011 Range Rover versus a 2011 Acura MDX, the monthly payment on the RR is almost double that of the MDX. Essentially, the RR payment could represent an additional $730 per month toward retirement. All other things being equal, for an average 35 year old female, this missed savings means needing to work an additional two years! Second, once you have the knowledge, prioritizing between conflicting goals may require some uncomfortable soul searching, not to mention compromise when planning as a couple.
I should make note that the purpose of this article is not to talk you out of any financial dream that you have or to imply that Range Rover drivers are irresponsible. In fact, I know a handful myself that could responsibly buy a few more if they wanted to. Rather, I am using an honest question from a friend to make the point that certain financial decisions are a must and the others need to be made in light of their true cost as they relate to your priorities. My friend and her husband have opted for private schooling over new cars. In terms of cash flow, they can afford a Range Rover but in terms of priorities, they have chosen not to.
Take a minute to see if you have completed stops #1 and #2. If so, allow your discretionary thoughts to run wild. Then consult a professional (and your spouse, of course) before making any final decisions.
Disclaimer: This has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. Beacon Pointe does not endorse and is not responsible for the content, product, or services of other third party sites or references.