We are all about saving money here at Moneyisms, but every once in a while there are things that you should drop the cash on.  Sometimes the satisfaction is worth it, and other times these items will actually save you money in the long run.  Here’s our top 10:

1. Health Insurance – We all know that health insurance is a huge expense, and goes up at a rate many times that of inflation, but having your health is an important part of being able to make more money.  On the flip side, if you don’t have health insurance and you do get injured, it may be a financial load that takes you decades to get out from under, if ever.
2. A Good Suit – Whether it’s for a funeral, a wedding, a job interview or any other occasion that requires you not look like you save money to the extreme, one good suit is well worth the money.  You never know, it may be the difference between you getting or losing that big business deal you’re working on also.  If you’re looking for a bargain, there are many stores that have great deals, such as S&K or The Mens Wearhouse on the East Coast.
3. Keeping Track of Your Credit – I would advocate one of the reasonably priced services that keep an eye on your credit reports and let you know if anything changes, however at a very minimum keep track of your credit history with annualcreditreport.com (the federally-required free service).  Fraudulent activity can take years to fix and be potentially expensive.
4. Gym membership – Many people tout the virtues of not paying for a monthly club, but from personal experience and hearing from others, it’s just too difficult to stick to a home-based training routine.  You can still shop out great deals, such as Planet Fitness at $10/month with no contract.  This goes back to the whole health thing.  You’ll feel better, live longer and have fewer medical costs.  Just go.
5. Food – You might be happy with Ramen noodles, but there’s a reason they’re only a dollar.  Spend the money on quality food, especially if you like to cook at home.  I can make an incredibly good and healthy meal for two for under $10.
6. Wedding Photography – For the singles out there, weddings are obscenely expensive.  From the food to the venue to the accommodations for tens if not hundreds of people…the one thing you don’t want to skimp on is a quality wedding photographer.  This is something you’ll have for the rest of your life – you don’t want your buddy taking the pictures on his Canon PowerShot.
7. Education – Sure, college is expensive, but don’t let that deter you from going to a college of some type, even if it’s a community college.  There are grants, scholarships, and in the worst case – loans.  The advantage in life and in money that you get from a college education is priceless.
8. Vacations – Like a lot of us, I put in 60+ hours per week between my 8-5, this blog and some of my side work.  You’ll get burned out quickly and your quality of work will decline if you don’t take a break and get away from everything every now and then.
9. Backups – How would you feel if you lost all of your pictures, financial data and any other things you may have stashed on your computer?  Whether it’s a DVD or a full-blown Linux box with RAID, don’t skimp on backups.
10. Cookware – This is a strange one, but much more applicable if you normally eat at home to stay within your budget.  Despite how well you think your $30 Wal-Mart set of pots and pans works, spend the money on a good set and see how much better of a cook you are.

Even when spending the extra money to get quality stuff, remember to still search out the deals to get the most for your dollar!  So now that we’ve got my list out of the way, what are some of the things that you like to spend a little more on to get quality?

Cars – love them or hate them, for many people they are the largest area of monthly expenditure besides your mortgage or rent, and therefore one of the best areas to improve your financial standing by making an informed decision.  When it’s time to get your next car, a big argument many times is whether to buy or lease.

As a general rule, I would say to buy your car if you plan to keep it for 5+ years, and also to make sure to purchase when the car is one to two years old to stave off that initial depreciation hit.  If you like driving the latest and greatest though, many times a lease would be the best option.

Upon first inspection, a lease is a complex financial transaction that many people don’t completely grasp, but it’s essentially broken down to this: the manufacturer guesses what its car will be worth in x months, and then you finance the amount between the negotiated price of the car and that guess (the residual), plus interest.

This brings to the forefront one of the biggest things to realize when you are leasing – negotiate it the same as you would a purchase transaction!  The only non-negotiable figures here are the residual and the base money factor (do your research and don’t let them tack on profit here), and in most cases the bank fee. 

I have a few additional rules for leasing if you’re going to go that route in order to get the most bang for your buck.

1. Pick a car that holds its value well.  Residuals vary greatly depending on the car and mileage.  For example, if you were going to buy a new BMW 328i, the residual for 36 months, 12k miles/year is 63%.  On the other hand, it wouldn’t be wise to lease a Dodge Durango, whose residual for an identical lease is 38%.
2. Pick a car that the dealer is running a special on.  Even the high-end brands have models that they are trying to promote with a good money factor.  A money factor is just an interest rate expressed in a different format.  You multiply by 2400 to get the interest rate (ie a MF of .00118 is an interest rate of 2.832%).

You’ll hear people say that you shouldn’t do a lease, because at the end of the lease you don’t own anything – this is a gross misunderstanding of finance, so don’t fall for that line.  At the end of three years, you’ll own a car as much as they do after a purchase – most car loans go 60-72 months these days, so the bank still owns their car also.  After all, you’ve heard the adage that you buy appreciating items and lease depreciating items, right?

The one thing I would recommend against is purchasing a car at the end of a lease – if you plan to buy your car at the end of the lease, just buy it now.  The goal of the lease is to pay the least amount possible for the amount of time you have the car, and then to turn it back in to the dealership so they take any possible loss from extra depreciation.  On the flip side, if they have underestimated the residual of the car and you think you can make a few grand off buying the car at the end of the lease and then selling it private party, more power to you!  What do you think?  Let me know in the comments!

We’ve all considered it – the hybrid car that will make us appear more environmentally friendly, save us a ton on gas and save the environment.  Beyond the fuzzy feeling you get helping the environment (as much driving can help the environment), I’ve always questioned the validity of the saving money claim they make from improved gas mileage.

I haven’t sat down to research and write an article on the savings until now though.  For comparison’s sake, I have chosen the 2008 Honda Civic as our steed of choice.  Just to get these two cars optioned as closely to each other as possible, I have selected the top-level EX model for the non-hybrid, which comes in at $19,510 base price.  The hybrid model comes in at $22,600.

We’ll assume that you do half highway driving and half of your driving in the city, which places us at an average of 42.5mpg for the hybrid (40 City/45 Highway), and 35mpg for the EX (30 City / 40 Highway).

At an average of 7.5mpg difference, how long would it take to make up that $3,090 difference in the base price?  If you assume that gas is $3.25 per gallon – it’s at $3.05 at my local station as of this morning, but I know that it’s more in other areas of the country – that’s 950.77 gallons, or  33,277 miles more gas we could buy for the EX.

Now the real question is how far we’d have to drive to break even.  Not considering other factors such as maintenance, we can figure this out using the following:

((x/35) * 3.25) + 19510 = ((x/42.5) * 3.25) +22600

Using this formula, we can see that it would take approximately 188,557 miles just to break even while driving the hybrid.

Total cost for Civic EX:

188,557 miles / 35mpg = 5387.34 gallons of gas

5387.34 gallons * $3.25/gallon = $17,508.85

$19,510 initial price + $17,508.85 = $37,018.85 TCO

 

Total for Civic Hybrid:

188,557 miles / 42.5mpg = 4436.64 gallons of gas

4436.64 gallons * 3.25/gallon = $14,419.08

$22,600 initial price + $14,419.08 = $37,019.08 TCO

Given these figures, even the most frugal of us would be hard-pressed to make the hybrid purchase from a financial standpoint.  As time goes on, though, these cars are coming closer and closer in price to their non-hybrid counterparts.  Whether it’s worth it or not to you is a personal decision!