Should I Rent or Buy?

You spend a lot of money each year on stuff.  If you are accustomed to buy now, pay later you are paying even more for the interest on your stuff.  Don't be tricked into the monthly payment mindset--that immediate gratification type of thinking will wipe out your long-term wealth building potential.

1. Furniture: BUY
Unless you move every year or two and pay big moving fees each time, never rent furniture.  Temporary international relocation might be an exception.  Scour the nickel paper for garage sales and pick up odds and ends until you can afford the expensive Haverty's set.  I've found the best sofas at yard sales.

Some rental companies charge up to 50% more than the furniture retail value.  And you have no guarantee as to the quality of rented furniture.  Calculate the overall payout for your rented furniture--you'll find it is much higher than you anticipated.   $200 per month may not hurt your pocketbook immediately, but you'll have nothing at the end of your lease term.

2. Recreational Vehicle: RENT
RVs range between $9,000 and $200,000 with wide differences in quality and performance.  Unless you live in the thing or need it for cross-country travel at least once a month, you'll come out ahead spending the $500 per week rental fee (plus mileage) for your yearly getaway.  Hard core campers who travel 50 days out of the year or more might consider buying a used (at least three-year-old) model.

3. Tools: RENT
Attempting that home improvement job and need a tile cutter?  Just rent one unless you plan on becoming a mosaic artist.  Need to spread a mound of dirt to fill in holes in your backyard?  Round up the neighborhood kids and a bushel of shovels or get a backhoe if the job is a biggie.  

If the carpet looks shabby and needs a shampoo, I like to rent a carpet cleaner from Lowe's or Home Depot.  For an industrial grade cleaning, it's far cheaper than hiring a company and better than the units I can afford.  Keep a cache of the basics for everyday jobs, but for bigger tasks check out your local home improvement store.

4. Car: BUY
Nearly 20% of us rent our cars (although it sounds better to say lease).  If you rent your car, you are probably concerned about the instability of aging vehicles and feel more secure knowing that any major vehicular operation is covered.  Think this through with me.  You fork over a down payment, pay a rental amount each month, and then at the end of your term give the car back "free and clear" (unless you've racked up more miles than were allotted to you).  If you'd rather own it at the end of your lease, be ready to pay far more than the car is worth.  Add on excessive mileage fees and leasing becomes a huge expense.

But with the cost of trading in every two years, it makes more financial sense to lease.  Yes, if you are foolish enough to trade in your car every two years.  Buy a reliable used car and drive it until it croaks.  My ten-year-old Honda Accord is still a joy to drive.  While it may not look as pretty as the 2010 model, I rarely have to repair it and don't have a monthly payment.  Cars are not an investment, they are an expense--aside from classic vehicles they will always depreciate in value.

5. House: RENT or BUY
Because of the sheer price of houses, there are many factors that must be considered before deciding to purchase a home.  As we've experienced recently, being a homeowner doesn't guarantee steady appreciation each year.  Rent typically doesn't increase or decrease as quickly as housing costs.  When housing prices are up, hold tight and wait for a lull in the market to buy.  

If you plan on moving within four or five years it may be prudent to rent rather than risk losing considerable money on your new home purchase.  Regardless of your choice, make sure your housing costs don't exceed more than 25% of your household income (and put at least 15% down to not sweat the bills each month).  Check out this calculator to assess your situation and make the best choice.