Net Gains: Getting Ready for That Big Purchase

May 21, 2008 — -- My family faces an expensive spring.

Our clothes dryer is dying, payment is due on my son's class trip and, most expensive of all, our nine-year old minivan needs to be replaced. These and a few other expenses seem to be converging all at the same time, leaving me wondering how to juggle them.

The new-vehicle purchase, in particular, is something I've dwelled on quite a bit.

The truth is that for most individuals and families there is never a good time to face a big expense like a new car. No matter how much you save or plan, buying a new vehicle is going to hurt.

In my case, I've decided upon a strategy that I think over the long term will offset the financial impact no matter what the short-term pain.

I'm making a financial to-do list. Finish the list, and it will be time to buy.

My thinking is if I can accomplish most of the items on the list before the car purchase, we as a family will be in better shape financially despite the big outlay.

It's a strategy I think can work for others facing major expenses at inopportune, maybe even downright difficult, times.

On my to-do list are financial housekeeping tasks large and small. Many are things that should have been accomplished a long time ago. Even financial planners like me fall prey to the forces of procrastination and inertia.

Tasks on the list include refining the family budget, shopping for a cheaper auto insurance policy, rolling over into an IRA a small retirement plan belonging to my wife from a former job and studying the best time to convert our traditional IRAs into Roth IRAs. Such a conversion means taking a tax hit now in return for tax-free income in retirement.

Done right, the Roth conversion by itself could make up for the cost of the new car, but we won't see the results until years down the road.

The to-do list also includes something I wrote about doing in a column last fall but have yet to implement. That is redeeming savings bonds set aside for future college expenses and using the proceeds to fund 529 college savings plans for each of my children.

Many of these tasks are meant to either reduce current expenses or increase future investment income. Others, however, may cost us more money but still are intended to build a stronger financial foundation for our family.

Within that category includes my intention to purchase additional term life insurance for both my wife and me. We've both been covered since before our children were born, but that coverage has not kept up with our needs. Because we had some coverage, however, taking the steps needed to acquire more was postponed easily.

The need for the new family vehicle may provide the needed incentive to buy the extra life insurance and accomplish these other tasks on my list.

I've told myself that once I can place a check mark next to each item on the list, it will be time to pull the trigger on the big auto purchase. My down payment for the vehicle won't be any bigger in the few weeks I've set aside for these tasks, but over the long haul I will be in a better financial position as a result of this effort.

So if you are facing a major unavoidable expense – whether it be a new car, an important home repair or even a tuition bill – look around life for other areas of financial improvement. Then make yourself a list.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning (www.fourpondsfinancial.com) in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com