Lessons From My Fabulous Frugal Mom, Part 3: Making Large Purchases

This guide to making large, big-ticket purchases is the third post from my special series: The Best Money Saving Habits I Learned From My Fabulous Frugal Mom. If you are new to this series, I recommend starting at the beginning with Habit 1, Shopping Luxury for Less. It will give you a chance to get to know my Frugal Mom and introduce you to her unique approach to spending (and saving) money.

The DO’s and DON’Ts of Making Large Purchases, According to Mom

Au revoir Paris. Hello Vancouver.

As I prepare to move from the home I thought I was building to a new city and a new apartment, I can’t help daydreaming about my upcoming living situation. Will it be as nice as the one I’m leaving behind? Maybe I’ll finally be able to buy the furniture I’ve been lusting after and create my ultimate little sanctuary.

After many years and many countries, I’m sick of starting over and packing everything up into a handful of suitcases. For once and for all, I want to create my forever home. A place worth investing my time, money and energy into, knowing that this time it’s for the long haul. Like many of you, I dream of one day owning my own home. And I’ve started calculating when (if ever!) that could realistically happen in a city with an international reputation for expensive real estate.

I would happily stay in my dreamhouse fantasy a little longer but my Fabulous Frugal Mom brings me back to reality. Her voice of reason keeps playing on a loop in the back of my mind. Does it really make financial sense for me to buy a home in an expensive city like Vancouver? Is it worth 30 years stuck behind a desk to pay off the mortgage? Would it not be wiser to rent long-term? Or how about a small 1-bedroom instead of a house? Reality check indeed.

Stop Expensive, Emotional Spending

Whether buying real estate, cars or other expensive items, Frugal Mom approaches all of her large purchases with the same philosophy. If she’s thinking of spending more than a thousand dollars on anything, she begins by pushing the pause button. Frugal Mom never rushes into a large purchase. Instead, she puts her emotions about the purchase aside and focuses on the numbers. From here on out, logic is her guide.

Aside from a modest time-share whoops back in the early 90s, she takes the time to contemplate every large purchase before she makes it. She evaluates whether the purchase is good value. Will it bring her long-term joy or just a temporary ego boost? Will it make her life easier and richer? Does she really, truly need this thing in her life? Will there be alternatives to this purchase in the future that are equally appealing? When we’re honest with ourselves about our motivation behind spending, we can make a much clearer decision about whether or not to move forward with the purchase.

The Illusion of Looking Rich

Sure, we’d all like a bigger home and a fancier car. After all, wouldn’t I save so much on gas (not to mention improve my eco warrior status) with a Tesla? When we want something, we can justify pretty much anything. But did you know that the wealthiest people aren’t living in the largest mansions or driving the flashiest cars? The wealthy didn’t become wealthy by blowing every penny they make. You’d be surprised by how many fancy houses and luxury cars are paid for by individuals who earn a high income, yet live paycheck to paycheck making large monthly lease and mortgage payments that they can’t afford.

You may have heard it before but the wealthy are cheap and proud of it. How do you think they built their wealth in the first place? To quote Crazy Rich Asians, “No one loves free stuff more than rich people.” That’s right. Aside from the occasional splurge, the rich are actually super frugal. Mick Jagger famously never tips. Multi-billionaire Warren Buffett lives in the same 5-bedroom house that he bought in 1958 for $31,500. And you’re more likely to see old moth-eaten sweaters worn to an English polo match than anything with a designer logo.

Frugal mom prefers to be wealthy than to look wealthy (although she does always looks fabulous despite her tight shopping budget – but more on that here). And she knows that the best way of becoming wealthy is to invest her hard-earned cash into assets. Items that will pay her a regular income stream, increase in value over time and grow her net worth.

Buying Assets Vs. Liabilities

It’s easy to justify a large expenditure by labelling it as an asset. Things like real estate, cars, boats, machinery, art, even fine jewelry can all be disguised as assets, but are they really?

Many of these items are what Robert Kiyosaki, author of Rich Dad Poor Dad, calls “fake assets”, also known as liabilities. A true asset is something that generates an income for you. Or as Robert puts it: “an asset is something that puts money in your pocket”. This could be anything from a rental property to a business, stock portfolio, or even an e-book. So if we want to build wealth, we should be purchasing income-generating assets.

Liabilities, on the other hand, just cost you money over time. They take money from your pocket. These include purchases like your home, car, clothes, subscriptions, TV and smart phone. Chances are that they will cost you upfront, over time (in the form of lease payments or repairs) and in depreciating value. You would be very lucky to get back the money that you’ve paid into them, not to mention turn a profit. These are the types of big purchases that should be kept in moderation if you want to build wealth like Frugal Mom.

Large Purchase #1: Buying a Home

Although home ownership technically falls into the liability category, owning your own home can provide a lot of comfort and stability. And if you’re lucky, your home might even go up significantly in value over time.

Like many Vancouverites who have owned their homes since the 80s and 90s, my Fabulous Frugal Mom has benefited greatly from the local housing boom. Thanks to a combination of smart decision making, good fortune and patience, her home is now worth twelve times the price she originally paid for it.

I can’t guarantee the same price increases that my mom has experienced. I can however share why she did so well over a period of time when many others didn’t. So if you do decide to become a homeowner at some point, here are the valuable lessons that I’ve learned from observing the large real estate purchases of my Frugal Mom.

Deciding Whether to Buy or to Rent Your Home

Before you even think about buying in a given region, city or neighborhood, ask yourself if you’re really ahead by buying. It might hurt to send that rent check every month, but when you crunch the numbers, paying rent is often much cheaper than all of the costs associated with being a homeowner.

Start by comparing your annual rent to your prospective annual costs if you were to buy your own place. You will need to include things like mortgage payments, insurance, property tax, additional utilities, repair & maintenance and real estate fees. You will also want to include the opportunity cost of the money you have tied up in the house that could be earning you an average 5-7% annual return in the market. Are you still ahead buying? You might discover that home ownership costs a lot more than you originally anticipated. Instead you might prefer to hold off for the time being or look in a different neighborhood.

The Best Time to Buy Your Home

Before signing that offer, it’s a good idea to evaluate your down payment situation. Will you be putting down enough money for you to comfortably afford those mortgage payments and other monthly bills? Or could it be worth growing your savings for a few more years before taking the leap? I was shocked when I first discovered how much people commonly spend on mortgage interest alone. It’s astronomical and you never get that back! So the more you can put down upfront, and the less you need to borrow, the better.

Interest aside, when you buy a home with next to no money down, you are also taking a serious financial risk. If property values fall, you can easily have a mortgage that is greater than the value of your home. Not good news if you suddenly can’t make those large payments anymore. You’ll lose it all. Don’t go there.

It’s also worth considering the overall market atmosphere in the area where you want to buy. Does real estate seem grossly overpriced or is it still good value for your dollar? Are people getting nervous and talking about an impending decline, or worse, a crash? Are there new laws coming into effect that could negatively impact local housing market prices? Although it’s impossible to predict what will happen in any given market, it’s still worth having as much information as possible. You might discover that it would be less risky to wait a few months or years before making your large purchase.

Focusing on the Important Details

There are endless things to consider when you begin to look for a home, many of which come down to personal preference. Here are some often overlooked details that you might want to think about before you take the plunge with your large purchase.

What, if any, renovations and repairs will you need to make to your new home to make it livable for you and your family? These costs will also have to be factored into your purchasing budget. Unless you’re getting a great deal on the home that can justify the renovation expense, you may want to move on. Remember that the small, superficial details that we tend to fall for in a home are often affordable to add yourself later on. They shouldn’t be the main reason you pick a home. Instead, make sure that the expensive, complicated, structural elements of the home and property are what you are looking for. The rest can be easily changed in the future.

And speaking of later, when you do finally decided to make some superficial home improvements, will they be worth it? If you are buying an old home that the next potential buyer will probably rebuild, is it really worth putting in a $30,000 kitchen? Chances are you’ll never get that value back out of your home. Think long-term.

Last but not least, is the home within walking or biking distance of the supermarket, a good school and other local amenities? Location is always an important factor in the resale value of your home. Plus, by living centrally you can save money by leaving the car at home (or forgoing owning a car altogether).

Finding a Home With a Side-Hustle

Does a property offer the opportunity for additional income streams? For example, you could rent a spare room or basement suite either permanently or from time to time on Airbnb. In certain neighborhoods you can even build an independent carriage house on your property that can be rented out for extra income. Why pay your mortgage when you can get someone else to pay it for you?

If you aren’t purchasing a home with much spare space, you could instead rent out your entire home wherever you go away on holidays. This is a great way to cover your bills while you’re traveling and could even subsidize part of your trip. Mexico here we come.

Buy a Property, Then Stop Moving!

This is Frugal Mom’s #1 homeowning rule. The main reason Frugal Mom has done so well over the years with the purchase of her home is that she has held it long-term. She’s benefitted from the slow and steady rise in Vancouver property prices since 1986, something around a 1300% increase! Had she bought and sold multiple times and changed towns frequently, she would have missed out on much of this gain. For example, she would also have paid real estate fees upwards of $100,000 if she had moved just 3 times.

I know plenty of people who have bought and sold their homes at least 10 times over this period. Between fees and selling during market downturns, they haven’t made any money on their properties at all. Just because they kept on moving!

So the moral of the story here is, if you can, stay put. Don’t move unless you absolutely have to. Buy a home with the long-term in mind. Over time the market tends to go up. If you’re lucky and patient, you might just end up with a house that’s worth 5 or even 10 times what you originally paid for it.

Determine Your Motivation for Buying a Home

The Holiday Home

It’s worth also touching on why you’re buying this home in the first place. Is it going to be your primary residence? Or perhaps a holiday home or rental property? If you’re not buying a home to live in full-time, there are so many additional factors to think about.

Whether you’re buying a cottage on a lake or a condo in Hawaii, it’s important to consider all of the actual costs of owning this home away from home. Is it actually worth owning a second home that you only get to enjoy a few weeks or months per year? I have a not-so-secret dream of buying an old fixer-upper chateau in France as a second property. But chances are this fantasy will stay just that.

For anyone looking to achieve financial independence, a property like this would be a total money pit. I would be spending a fortune on a place that I would only use for a few months per year. Aside from the minimum half million euros that would be tied up in the property, the maintenance would cost me at last $25,000 per year. For that amount of money I can rent a fabulous villa for a few months every Summer, minus all of the upkeep and hassle.

The reality is that we’re rarely better off purchasing a holiday home. We would actually be spending less over time if we instead splurged on a luxurious annual holiday. Add to that the bonus of getting to explore so many more exciting and exotic destinations. Think one year Bali, the next year Greece…

The Rental Property

You may also be looking to buy a home purely as an investment. In other words, as a rental property. In this case you will want to choose a city with a strong rental market and affordable property prices – a proven strategy for earning steady rental income that more than covers your mortgage payments and any other costs you will incur. You don’t need to buy local or spend hundreds of thousands of dollars to make a good investment. Instead focus on locating the best opportunities across a broad range of rental markets.

Increasing property prices shouldn’t be our main priority. They are an added bonus. In fact most seasoned property investors will tell you that buying for gains on future sales is merely speculation, aka gambling. Focus instead on the monthly income streams provided by an investment property. For more on how to do this, I recommend listening to Paula Pant’s Afford Anything podcast, which offers endless hours of vetted real estate advice. Canadian Mike Rosehart also offers a lot of useful information on his YouTube channel.

Large Purchase #2: Buying a Car

Frugal Mom buys a “new” car approximately every 10 years. She’s a sucker for a sexy car and has a weakness for German luxury automobiles. She doesn’t compromise on quality or good-looks. You may therefore be surprised to learn that she has never spent more than $20,000 on a car (with one exception). She also spends significantly less than her fellow Mercedes and BMW owners. Here are her best practices for making large purchases on cars.

Only Buy a Car that you Can Afford – in Cash!

That’s right. Frugal mom is adamant about only buying what you can afford. That means no leasing, taking on debt or emptying your bank account to drive a car that’s outside of your budget. Sorry, but if you have to lease a car to afford it…you can’t afford it. If you have a good salary and can afford to make monthly payments, set that money aside. Buy the car flat out when you have enough cash saved up.

A car is a liability. Over the time you own it, it will only cost you money and decrease in value. This is not an item you want to be making interest payments on. It’s just not worth it.

My first car was a 20+ year old, well-maintained, 1983 red Audi. She cost me $2000 cash and ran like new. She may not have been the newest car on the block but I loved my Audi. Thanks to Frugal Mom’s advice, I was able to drive around town for five years in an attractive and practical car at very little cost. I later sold the car for $1,000, so she only cost me around $200 bucks per year in depreciation. Not bad if I may say so myself.

Don’t Buy New Cars

If you’ve been following the Frugal Mom series, you will know by now that my Frugal Mom tries to avoid buying anything new. Just like her clothes and her home decor, she’s a big believer in new-to-you, in shopping second-hand. So if you’re wondering how she can drive a fancypants Mercedes convertible for only of $12,000, you’ve got your answer. She ALWAYS buys used cars.

Did you know that new cars lose an average of 10% of their value in the first month and 20% in the first year? I think we can do better. Let somebody else who “needs” a brand new car take the biggest hit. Instead, be the one to purchase that car when it’s five years old – when Mr. New Car is ready to trade up. The car will already have decreased by up to 70% of its original value. Meanwhile you will have yourself a still quite new, very pretty car to drive to your heart’s content. Smart, no?

Any one of us can optimize our purchase to get the most car for our precious dollars. Whether you want to drive a Porsche, a Prius or just something decent under $2000, you will always get the best value for your money when you buy a second-hand car. Not only is it a more sustainable choice, especially if you go hybrid or electric, but I believe it’s also the most attractive option.

In my opinion it’s so much more chic to be driving an old Mercedes (or whatever your dream car may be), than something brand new and ostentatious. As I explained earlier, an expensive item, such as a fancy new car, is for someone who wants to look rich. But anyone can make a large lease payment if they really want to. Showing off is not a symbol of true wealth. Restraint is. If you don’t believe me, take a page from the English aristocracy. Old money, old car. So drive the old girl proudly.

Factor in All of the Additional Costs of Owning a Car

Owning a car costs more than just the cost of the car itself. You may have the cash to pay for it, but the spending won’t stop there. A car is a liability and will continue to cost you as long as you own it. That’s why we need to consider all of the monthly and annual expenses involved with owning a car before making any large purchasing decision.

Most of the costs associated with car ownership will vary somewhat from car to car. You will want to realistically compare costs for insurance, gas/electricity, parking, repair and maintenance and depreciation. As you’ve seen above, losses due to annual depreciation (declining car value) are huge. By budgeting all of your costs, it will be much easier to decide what make, size, age and fuel type of car you can actually afford – and how much you are willing to pay for it.

Large Purchase #3: Big Ticket Items

Many of the recommendations shared about buying a home or a car can also be applied to other large purchases in your life, such as buying a sailboat, a camper van, a state-of-the-art TV or even an industrial BBQ.

Be honest with yourself. Is the expensive item something that you will actually use often? And can you buy one that’s second-hand? Does it really match your current or future lifestyle? Is it worth adding another six months or six years to your retirement age in order to pay for it? Would it add value to the things you care most about, such as spending more time with loved ones?

Avoid making large impulse purchases. Wait a year. See if you still want the item several months later. Prioritize extravagant purchases that will bring you happiness, comfort and convenience long-term.

Then whenever possible, look for ways to “hack the system”. Explore the sharing economy. Borrow expensive tools and other items from a community sharing program or from friends. Or find ways to use your expensive purchase to support a side hustle. Rent out your purchase when you’re not using it. Make it pay for itself. Turn your liability into an asset.

Hey, Big Spender…

There you have it, Frugal Mom’s guide to making large and very smart purchases. I hope that this post will save you thousands of precious dollars over the years to come.

Just a short reminder that the ideas shared in this article are the opinions and experiences of my Frugal Mom and myself. They should not replace your own research when making large purchases. We cannot be held responsible for any accidental purchases of castles, Teslas or Rolex. Always consult an industry professional before taking the leap and making a large purchase.

If you have any tips for saving money when spending big, or for making educated purchasing decisions, please share them with the community in the comments below.


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