I read this in a thread where someone raised the question, does having the cash for an item always make it affordable? Does saving up to pay cash for a car still make sense? Is there a limit to affordability even if you save to buy something?
Just because we can pay cash, does it really mean we can afford it?We were normal, just like everyone else pre-Dave Ramsey. *Just about* everything we ever bought was financed, bought on debt. That has completely changed, and now we pay cash for everything. But, just because I can come up with the cash, does that really mean I can afford to buy it?
It seems like I see it as justification for a lot of things that people buy, now that they are on the DR plan. It seems like the general consensus is, if you can pay cash, it’s “OK” to buy it.
We’re talking about vacations, cars, major home purchases-appliances, electronics….etc, you name it.
I want to challenge that thought. Most of us, or at least many of us here, (including myself) are trying to play “catch-up”. We started out in debt, in the hole, but also retirement is very anemic or none, college has not been started yet, and many have very little equity in their homes. That’s where the “catch-up” part comes in to play.
First we have to get out of the hole, and that’s step 2. Then save the emergency fund, that’s step 3. BUT….that’s only half of the steps right there. That’s the easy part!! You’ve still got three whoppers coming up, and they’re biggins–retirement, college and paying off the house.
If you are playing catch-up, you have to start making hard choices about what your life will *really* look like once you are done with step 3, the FFEF. Can you really afford to buy all the things/experiences you want–even if you can pay cash for them?
Take our situation, for example. Our average snowball is $2200 a month. We *should* be able to do Dave’s great drive free program. “But, we can pay cash!”
Think again. DR’s plan is save $475 a month for 6 years ($35k) to be set in driving a NICE car the rest of your life. But we have two cars. For DH and myself to each drive a nice car, we would need to double that amount and save $950 a month for 6 years!! Whoa, nelly! If we subtract $950 from our $2200, that leaves us with $1250 to split between BS4 & 6 (no kids). What happened to our $2200 snowball? It got chopped! I wonder how much longer it will take us to pay off our house AND to retire when we choose to drive nice cars? I’ve said before, we’re staying right with hoopties. No $30,000+ cars for us. We can’t “afford” it.
I also thought initially that when we got done with at least 3 months of expenses for the FFEF (step 3)., that we would start vacationing again like there’s no tomorrow. But now that I’m there, if we start taking vacations like I really want to, it’s really gonna take a good sized chunk out of our BS4 and BS6. “But we can pay cash for it!” Nah, but it still doesn’t mean that we can afford it.
My longwinded point is this. Don’t forget that you still have to do baby steps 3, 4, 5 and 6–as quickly as life will allow you to do it. You have to be careful that you don’t add so much lifestyle back in that you have no money left for those steps—-even if you CAN pay cash for it.
It really got me thinking, this is exactly how I feel. I feel like we should be able to afford many things on our salary. And we can save cash for it, but we still can’t afford a $30k car, which is not a super luxurious car. Maybe we could afford a $15k car but that only replaces our current Toyota Corolla or Ford Focus! Hello! My DH makes 6 figures alone and we can barely afford to buy a new Corolla or Ford Focus?
How did this happen? Why can’t we afford the Camry, Accord, or even Highlander/CRV that everyone seems to have? Or the Sienna/Odyssey Minivans which are around $30k? These are not BMWs, Benz, Lexus, these are average cars.
Or affording a 2 week, $5k vacation? It’s pretty unaffordable. But why is it so? Where is all the money going? Shouldn’t we be able to buy a better life, living mostly debt free? Or are we supposed to deprive ourselves until the mortgage is 100% paid off?
And shouldn’t we be able to buy it if we can save the cash? Maybe. But something’s gotta give. Like paying off the house early, or retiring early, or paying for college. It’s impossible on a limited salary to have it all.
What do you think? If you can pay cash for something does it make it affordable?
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21 responses so far ↓
1 vipness // Jun 6, 2008 at 5:12 pm
We are all beginning to feel the effects of the hidden tax.
2 Barb1954 // Jun 6, 2008 at 6:14 pm
What hidden tax?
LAL, I think what you’re feeling or experiencing comes from being part of a generation raised by their parents to expect or perhaps given the the impression by advertising that they are entitled to “have it all.” Life is not a MasterCard/VISA commercial.
As someone born in 1954, I have a bit more experience and have learned that life is all about tradeoffs. Sure some people have huge or luxury cars or designer clothes or $5,000 vacations. But we don’t know the level of debt they’re comfortable. Perhaps they own their own businesses and are making money hand over fist. That’s not the life of most people, however.
If anything should tell you that the facade of people’s lives does not match reality it should be the news that Ed McMahon is facing foreclosure on his $6+ million mansion. If the guy who handed out millions from the American Family Sweepstakes to others and who worked all his life doesn’t own his home at age 85, then something is definitely wrong. Ed’s excuses about the economy, etc. is just a bunch of nonsense. Live below one’s means, save for the future, and stop buying things to create an image to impress others. Life is about tradeoffs — it’s pretty impossible to have all the toys and still have lots of cash invested for retirement and a paid for home. Life is not about material things anyway. The sooner people figure that out, the happier they will be.
3 Mrs. Micah // Jun 6, 2008 at 6:40 pm
You can only afford it if you don’t have to/want to/need to spend that money elsewhere. Right now we have some significant cash on hand (at least compared to many). But some of it is EF and some is a cushion fund for months when the freelancing isn’t as good.
It’s got a purpose.
As Barb says, a lot of money management is making priorities and tradeoffs and figuring out what you really want and can afford.
4 Kristy // Jun 6, 2008 at 6:50 pm
I agree. DH and I make plenty of money, but we still can’t afford to pay $30K for a car! I can’t understand how some people can. I was just looking at cars the other day and it made me sick thinking about adding another $300-$400 a month to my debt…not that we have much debt either. But really, after maxing out our 401K’s and retirement accounts and saving even more on top of that….we can’t really afford anything else.
5 Anonymous // Jun 6, 2008 at 9:26 pm
I think if you are saving appropriately, for retirement, emergencies, etc. and meeting your other financial goals, then if you pay cash - yes you can afford it. If you are pulling from your other goals to pay cash you can’t.
Really it’s about priorities - you probably can’t have it all. But you can have some, it’s just what is more important to you - the vacations, the car, the house, children’s education, etc. Pick 1 or 2. All of them…it’s probably not going to work.
I haven’t read a lot of DR, but I think some of his methods are a little crazy. Debt, if well managed and used appropriately, is not something to be afraid of or to feel that it MUST be eliminated.
6 boomie // Jun 6, 2008 at 10:24 pm
I’ve been living debt free for 8 years now and I will tell you that it is NOT easy. It’s a series of making choices and substitutions. I can afford many, many things but I won’t. I set up a living standard of $45-$50K a year and stay within that guideline. I have a set amount in my retirement account, investments and emergency fund. I never go above my threshold. Never.
I live mortgage, car loan and all debt free. Yes, I can go out and buy myself a BMW but I drive a brand new ‘08 Ford Focus that I purchased for $16,500 instead because it falls within living in the $45K annual salary. I could easily pay $24,000 cash for a power boat but chose to buy a 22 year old $6K sailboat for cash instead. I could easily travel all over the globe but stay home instead and wait until I can squeeze a trip within my guidelines. I do this by choice. It seems to work for me. I’m happy.
It’s more important to me to have money in the bank than spend it. That’s the choice I made. I impress no one but myself. I do not care what others think about me. I will never incur any debt ever again.
DR isn’t always right but one thing he says, I agree with wholeheartedly: live like no other now, so that you can live like no other later. I love living in the $45-50K annual salary lifestyle. I can maintain this lifestyle till I am in my 100’s.
7 Livingalmostlarge // Jun 6, 2008 at 11:23 pm
I think some of you get my point. That it seems like there is this promise that if you pay off all debt, you should have all this money.
That the $2200/month debt snowball should be more than enough to afford everything! Where does it all go?
I get that it has to go to retirement, college, deferred maintenance, but then like the person wrote, it seems like there is very little leftover.
How is that possible? Where did all the debt snowball go?
8 Barb1954 // Jun 7, 2008 at 11:35 am
I think you answered your own question — it goes to retirement, college, deferred maintenance, etc. It’s just a math question of dollars and cents not anything too mysterious.
9 chris // Jun 7, 2008 at 5:59 pm
I think there are few different story lines in article that may not be entirely clear as you first read it.
The first is whether having cash to buy something is still the wisest use for that cash. Let’s say for example you save money to buy a car and planned to spend $25,000. You now have that amount. Is now the time to buy it? Is that the wisest use of your money. What is the opportunity cost of buying the car vs waiting, buying less of a car or doing something entirely different with the money?
The next subtle question is when you save for a car, are you really only fooling yourself. The reason is it’s still a car payment. The only difference is you control when and how much the fund receives vs the bank or the leasing company.
There is also a more clear question of “I’ve snowballed all my debt away over the past three or four years and now I really don’t have that snowball money at my disposal. It’s still being eaten up by other obligations such as retirement, sinking funds and daily life. I had debt, but my life was better. Now I don’t have debt, but I’m not thrilled with my lifestyle.
There are a thousand and one answers to the last sentence, but the money books all have the undertone of be debt free and life is nothing but the spoils of wealth. (Ever notice there is not a single money book written by someone who is debt free, has a modest income and is debt free?)
For many, being debt free and having wealth is moderate in term is not the situation. Especially if you have a modest or middle income. For most in those situations, you really have to sacrifice for long periods of time (30+ years) to enjoy wealth. I know for me, I don’t want to be known as the kooky hermit who left a large cash endowment to some college or church, but never learned to enjoy life.
I was thinking earlier as I picked up a taco bell cup someone littered in my yard what containers in addition to the cup could I find an alternative use for in my household. I could save all my margarine bowls and use them for soup and cereal bowls. I could save my plastic spoons and forks from Wendy’s or McDonalds and use them for everyday silverware. I could buy a dozen cups of McDonalds coffee and then reuse the styrofoam cups as my coffee service.
I could save the trays/plates from tv dinners and use them as my good china.
Do that long enough and, yes you could become wealthy. But after a period of time, could you ever let go and buy $20.00 worth of flatwear?
I think you’d soon become the kooky hermit.
10 Livingalmostlarge // Jun 7, 2008 at 6:21 pm
Not but it’s supposed to be easy. There is supposed to be all this money after you pay off all your debt.
BUT it doesn’t really seem to happen.
11 Barb1954 // Jun 7, 2008 at 9:06 pm
LAL, I think the lesson is don’t believe everything you read.
13 inmomo // Jun 12, 2008 at 8:06 pm
You make a great point (whether you meant to or not)….that no matter how much money we have, we still want something more. You may have no debt, saving great for college, a “savings” fund for every possible big expense that may occur, a back-up emergency fund in case a of a BIG emergency, a great monthly spending plan……..and guess what, we still feel unfulfilled. Why? Because we can never fill “the void” in our life with money. No vacation or new car or new jeans or huge home will ever be enough. I’ve been living debt free for about one year now (mainly because of D.R.) and I’ll never go back. I see what you are saying though. Our household income is near $100k and we don’t have the money to live lavishly…why? Because our money is in all the right places, it’s not lurking around a nameless savings account, hoping to be spent on a new Plasma TV or a Wii! I find great satisfaction in that. You also have to build the nice luxuries into your budget. Simply putting in $75/month or so to save for vacations (or whatever) will go pretty far when you let the money accumulate.
PS- $15,000 will get you well-equipped, low miles sedan (Camry, Altima, etc.) I know because I have both.
14 Livingalmostlarge // Jun 12, 2008 at 10:39 pm
It will get you a nice used sedan that isn’t luxury or even new. BUT what happened to the promise of everything once there is no debt?
19 disneysteve // Jun 27, 2008 at 8:38 am
I think this person hasn’t totally gotten with the program yet, though she is definitely on the right track.
At the beginning, she says, “We were normal, just like everyone else pre-Dave Ramsey. *Just about* everything we ever bought was financed, bought on debt.”
Then later, she says, “Why can’t we afford the Camry, Accord, or even Highlander/CRV that everyone seems to have?”
It hasn’t sunk in, apparently, that the reason “everyone seems to have” those things is that they are still financing all of their purchases and living under a mountain of debt.
Nobody needs a $30,000 car. Sure, some folks make a ton of money and can comfortably afford it, but the average American family shouldn’t be spending that much on a vehicle. I’m not a DR fan, but does he really suggest saving up $35,000 for a car? That’s insane.
20 Livingalmostlarge // Jun 27, 2008 at 10:12 am
No it’s a promise that once your debt free you can save and buy anything you want. And it’s affordable because you saved cash to do it.
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