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Wednesday, March 29, 2017

My Savings are All Gone!

Posted by Dave on March 7, 2011

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any.  Dave is from Ontario and is working towards his CGA certification.

In the past few weeks, two people have been fired from my workplace.  Both departures were announced via very vaguely worded e-mails, which has lead to all sorts of speculation around the cause of the dismissals.  Personally, I feel a little uncomfortable right now.  I like my job, and at this point I have no reason to believe I will be at the end of a vaguely worded e-mail, but I recently lost my unemployment money buffer when my wife and I used all of our savings to purchase a car.

From a personal finance standpoint, it seemed like a toss-up whether to take on the debt of car payments or maintain a healthy savings account.  My wife and I chose to keep our debt at zero and spend the next few months building our savings account back up, rather than add a burden to our current cash flow.  The only problem with this method is that for the next few months, we are somewhat vulnerable to cash fluctuations (such as a random firing) that would cause some financial difficulty if a new job couldn’t be found quickly.

So, why did we make this decision?  Last fall my wife got her driver’s license with the intention of using it to drive to a new job in the coming months.  In getting her license, we knew we would need to get an automatic transmission car, as she was not comfortable driving my manual-transmission (which is over 10 years old now and would need to be replaced soon).  Rather than waiting, we utilized all of our available savings to buy this car, with the intention over the next few months of building them back up to our normal 3-5 months of living expenses.  I am very anti-debt and felt that keeping our consumer debt at zero would be better than having money sitting there “just-in-case”.

The good thing about our personal finance plan is that our fixed spending is based on being able to support our household on the lowest earner’s wage.   These fixed expenses include our mortgage payment, insurance, utilities, and food.  Because the only debt we carry is a mortgage, which was structured 2 years ago with a 35-year amortization (which we hope to pay off in under 6 years) our fixed monthly expenses are fairly low.  Outside of these fixed expenses, we could essentially eliminate all other monthly costs (if need be).

So, right now I’m just hoping to keep my job over the next few months.  I dislike debt enough that I am still satisfied with my car-purchasing decision, but I’m wondering what you would do in a similar circumstance?  Would you have financed the car on a short-term basis, paying interest rather than being “cash poor” for a few months?

Comments

13 Responses to “My Savings are All Gone!”
  1. jon_snow says:

    I think I would have saved for a little longer so I could pay cash for the car and still have a cash cushion. My wife and I are proponents of having ample cash for the “sleep well at night” aspect of it. Granted, we are a little overboard on that right now, having about 7 years worth of living expenses in the bank right now earning a magnificent 1.5%.

  2. Brian says:

    I was in a car accident a couple of months ago. My truck (which was my work vehicle, as I am self-employed) was totalled.

    After insurance paid off the remainder of my car loan, I still had a fair amount of cash left over.

    Spend the time since then not only carefully shopping for something but also debating whether to keep that cash “just in case” and take out a small loan for a vehicle…or just pay cash and be done with, as I hate debt as well.

    Wound up just paying cash for a decent older truck that’ll allow me to do what I need to do. If all goes well, I’ll be able to pay myself back for it in a few months. After which I can see about upgrading if need be.

  3. Dave – I think the decision to use savings rather than go into debt was the right one. I commend you that you are already working on building the savings back up. Hopefully this new car is much more fuel efficient and will help to mitigate the rising gas prices. Maintenance should a little less as well.

    As for your concerns about what is going on at work and lack of savings. Here are a couple of tips I have given over the past 6 years coaching people through career transitions.

    If you like your job make yourself valuable to the business. Take on and dominate projects and share the results with your boss and their boss.

    Set up and establish a good line of credit NOW while you have a job. The thing about credit is that you can always get it when you don’t need and can never get when do need it. Go to your primary branch and establish a low interest line of credit for at least 6 months worth of expenses. If you never use it – it doesn’t cost you anything.

    Keep up with your savings now – if you are laid off you won’t be able to and that can seriously derail your financial plan.

    Get you resume up to date – even if you aren’t looking for a job you should do this at least once a year with all the accomplishments in your current position. ( This can help give you the confidence to go and ask for raise and have the justification to back it up)

    Continuously build your network. Use LinkedIn and make an effort to remember people and their passions. When at all possible try to connect other people and help others achieve their goals. By giving to others you will make deposits from which you can withdraw when the times comes. ( Read Harvey MacKay’s book Dig your well before you’re thirsty.http://www.amazon.com/Your-Well-Before-Youre-Thirsty/dp/0385485468/ref=sr_1_1?ie=UTF8&qid=1299598410&sr=8-1 )

    Lastly – if you do find yourself sitting with your boss and someone from HR you need to understand what is happening. Bottom line is when you are being laid off what is happening is the company and saying “we want to change your employment agreement contract” be sure not to sign anything until you have a chance to review it thoroughly and I highly recommend you sit down for one hour with an employment lawyer to ensure that you get what you are entitles too.

    Check out my article 6 Tips for when you lose your job! http://frankwiginton.com/6-tips-for-when-you-lose-your-job

    Enjoy the new car smell well you can!

  4. deegee says:

    The first car I bought back in 1986 I paid with cash. It left me with about $15 in my bank account. However, I had just moved back to my parents’ house, temporarily, and needed a car to get around. (I had been living in Manhattan and did not own a car there.) Also, my next paycheck was arriving in 2 days, the first step towards replenishing my depeleted finances.

    By the time I moved out about 7 months later, I was 2/3 of the way back. Four months later, even with bigger expenses, I was back to where I was before I bought the car. Emboldened by that, a few months after that I paid off what was left on my student loan (8% interest, about $3,000 left on it). Recouped that in a few months.

    The next time I bought a car, 6 years later, I had a considerable cushion so that I was able to tap into it and pay for it in cash without jeopardizing my finances.

  5. I would have done the same thing. No debt is the best way to go. I wish you the best with your job.

  6. I have done the same thing – and will do so again. I find that I get antsy though, with a large amount of cash in the bank account. This leads me to always want to scrap the car fund and put it down on the mortgage and just try to prolong my existing car for a little longer.

    I keep getting signs though. My automatic window wouldn’t come up today, my dashboard is unlit and my engine light is perpetually on. At some point I’ll have to make the plunge, but I feel better with the money against my mortgage.

  7. Excellent move but the real answer is to build up your savings so that interest is comming in, so that eventually the interest comming in is a much or more than your earned income. This is, I know, really hard to do, today, BUT do not despair interest rates will move up and I believe, sooner rather than later. What every saver needs to under stand is that some stock dividends but mostly interest income is the one true goal, for all who want to retire early. That is the way I did it.

  8. Perfect Dad says:

    Get a low interest line of credit now, while you have a job and still easily can, so that if you need to then you can use it for your emergency fund.

  9. dave says:

    @Eclectic Indulgence: if your dash lights are out then your brake lights are likely out as well. (not good) They put the dash lights on the same fuse as the brake lights, otherwise the driver will never really know their brake lights are out and they could drive for weeks/months/years without knowing… good news is that it’s probably just a fuse. :)

  10. louieP says:

    We’ve always avoided debt and built up a comforty rainny day fund.
    The problem is it has become an odd habit of saving for the shake of it. We probably have to go through 10 federal government commissions before any major spending (like a car) is agreed on. I’m sure that if I raise the issue of changing our 10 year old fine running car now I’m inviting some unnecessary heated argument. So I choose to drive the old reliable and have peace, even though in my heart I always ‘wanted’ that Porsche. :)

  11. Dave says:

    @ jon snow – not exactly an emergency car purchase, but my wife needed an automatic car to get to a new job. I would have preferred ample savings.

    @Frank wiginton – Thank you for your helpful advice, the tips on your site are very useful for the possible circumstance I am in.

    @ david snelgrove – Someday I hope to have enough investment income coming in that my job will be less of a concern.

  12. Devin says:

    The only thing that you don’t mention is whether or not it was a brand new car. If it was the only thing that I would have tried to find would have been 0% financing for whatever period of time the car dealership was willing to offering (ie 12-18 months). Since you had the cash anyways to cover the cost it would have allowed you to build your savings interest free whatever period of time you had 0% financing for your car purchase. Don’t know if that was an option, but this would have been the only thing better than spending your savings. Always a good idea to not pay more than the value of your purchase especially when it comes to vehicles. Interest is a killer on vehicles since they retain little value.

  13. dave says:

    @Devin: 99% of those car dealership 0% financing offer are bogus. you just pay more for the car when you finance it vs. paying cash. for example I went to a Chev lot to look at a new truck $71,000.00 5 years 0% financing. Or if I pay cash I get a manufacture cash rebate and only pay $60,000.00 for the truck. So in essence I’d be paying ALL the financing charges ($11,000) up front. This is not 0% financing.

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