Your home is your castle and your car is your toy. A home is an essential, but you might manage without a car. If you've purchased both a house and car, you might want to choose whether to improve your house or accessorize your car -- or pay down your debt. In most cases, your house is more expensive, more permanent and more important to your future.
In addition to providing a roof over your head, a house and real property might increase in value. Have some money saved for home repair emergencies. Expect to need 5 percent of the value of the house for annual repairs, suggests Gail Vaz-Oxlade, author of “Money-Smart Kids” and “It’s Your Money.” Once you've got an emergency fund, consider home improvements. Choosing to update the kitchen or add a second bathroom is good use of your money because they increase the value of your home, writes R. Rebecca Carter, a blogger for Quicken Loans.
Even if your car is under warranty, you may have some repair expense. Hold back some of your money for repairs. Suze Orman and other financial experts recommend purchasing a previously owned vehicle for the best value. Because a vehicle depreciates, financing for longer than 36 months isn’t wise. A new car decreases 11 percent in value when you drive it off the lot, and after five years, it’s worth about 37 percent of the original cost new, according to Edmunds.com. Some car accessories increase the value but others might make your car unsellable.
Some home improvements add value and make a home easier to sell. Adding a large master bath, spa tub or double sinks in the bathroom are improvements recommended by Bankrate.com, but spending money on a swimming pool is rarely a good investment. You won’t likely get your money back and it may make your home difficult to sell. Spend your money on improvements that a new owner will want even if you don’t plan to sell your house soon.
Hesitate to make improvements to your car beyond ordinary maintenance. Factory options from the manufacturer provide most of the upgrades suitable for the type and class of vehicle. Modified cars aren’t easy to sell. Lowering the suspension and adding low-profile tires may be cool, but you might be surprised when you try to sell your car. Buyers looking for cool cars don’t want one that you’ve run hard, and aftermarket exhausts and superchargers give that impression. You may have voided the warranty as well.
Paying Off the Loan
Credit card debt should be paid off first because of high interest charges. If you owe on both your house and your car but don’t have credit card debt, consider reducing the house or car debt. Your car loan is probably less than your mortgage and has a higher interest rate, so adding extra money to your car payment or making an extra payment will save the most interest. Review your loan papers or contact your lender to make certain that any extra payment you make applies to the principal. If you purchased your car with a home equity line of credit, make it a priority to pay it off as quickly as possible. Using a HELOC for your vehicle purchase makes your house the collateral on the car loan. If for any reason you can’t pay, you might lose the house.
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.