Dave Says: Don't let 'little kid' ruin your financial plans

Dear Dave:

We're debt-free except for our home, and we'll have our fully funded emergency fund of three to six months of expenses - we've agreed on six months' worth - saved up by the end of February. We're also setting aside a little each month to buy a newer car with cash later. We're about $5,000 from our car fund goal, but my husband is getting impatient. He wants us to go ahead a finance the remainder, since it's a relatively small amount. He has tried to justify this by mentioning that you don't seem to have a problem with people borrowing money to buy a house. Could you explain the difference?

- Lana

A: OK, first things first. I don't like debt of any kind. I don't really like borrowing for a house, but I'm not unreasonable. I tolerate mortgage loans, as long as people use a 15-year, fixed rate mortgage with payments that are no more than a fourth of their monthly take-home pay. A house is often the largest purchase in a person's life, and one most people can't achieve based solely on saving. I still recommend, however, setting aside as much as possible for a down payment before taking out a mortgage.

Here's the thing. Cars go down in value, while traditional homes generally increase in value substantially over the years. Plus, you can get an absolutely great, pre-owned car for $10,000 to $15,000. This is an amount which, in my mind, is doable over the course of several months through determined saving and living on a budget. Depending on where you live, a good home can cost 10 to 20 times that much.