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?