You Make the Call
June 23, 2009 by: Dave Ozment
Try as we may, we don’t always make the best decisions. We may improve our odds by creating rules and other criteria to evaluate our options but even in the best of times these rules may develop bends in the direction of our wants.
Sure, every rule has its exception, but likewise, the justification slope is a slippery beast.
So with that backdrop, allow me to share a recent financial decision for your consideration. Did I rationalize a poor decision or have I appropriately realigned my priorities?
Here are the situational highlights followed by our selection options:
- In January I accepted a buyout from a former employer
- On June 1 I accepted a new job virtually replacing my previous income to the dollar
- Prior to the buyout we were roughly 3 months – on our then snowball schedule - from being debt free (non-mortgage)
- My wife drove a legitimate Get-out-of-debt-car that was quickly deteriorating – a second oil leak and a new transmission leak had developed since my previous entry on the topic
- I had travelled with my job, so my 12 year old Jeep Wrangler – with no AC – was simply a fun weekend rider
- My new job is local with a daily 50 mile round trip traffic-laden commute
- $10k from our buyout funded our 2008 Roth IRA contributions, this money was moved into an IRA account but not moved into the market and its entire amount is available – I consider it a dual purposed Emergency Fund at this time
- During my non-employment period, in a cash preservation mode, we added roughly 1 month’s worth of snowball payments to our debt load
At the time of my re-employment we generally defined our options as the following…
Option 1 – the Dave Ramsey friendly option
- Pay off all non mortgage debt
- Fund a non IRA dependent 3 month Emergency Fund
- Begin saving for a commuter car, Debt-Car replacement, and Emergency Fund growth from 3 to 6 months
Option 2 – the Slightly Rationalized option
- Purchase a commuter car and replace the Debt-Car for roughly $16k – 2 “new to us” used cars
- Fund a non-IRA dependent 2 month Emergency Fund (roughly 6 months with the Roth IRA dollars)
- Begin the 4 month process of eliminating all non-mortgage debt
So clearly with this set up, we selected Option 2. We did this with the mindset that the only significant difference is 4 months of decreasing debt risk (decreasing as we make our monthly snowball payments) offset by the reduced car risk… not to mention the increased creature comforts associated with the new cars.
So what do you think? Clearly we were intentional and budget conscious in our decision but did we make the right decision? Should we have endured the car situation through the summer while enjoying the (non-mortgage) debt freedom for 4 months or were we, in your opinion, justified in the pausing of our snowball for the sake of a couple cars?
Photo By: Outdoor Sports
Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates. Thanks!
It is a tough call. I am in a similar cross-road. I need a larger car, due to family growth. I decided to do the cost vs options route. We set a budget for less than out of pocket $10k for a van. In doing this, I have delayed the purchase to later, made a goal to get rid of ‘1′ more debt, and still shopping for the best deal. I hate to trade one debt for another, but my ‘unsecure’ cc debt is more of a risk than a fixed van debt. As for the cash-for-clunkers, the deal is you have to buy NEW to replace it. Yeah, the new cars are on sale, but they are still outside my $10k budget. In the debt is debt, but hopefully it will not delay our progress by too much.
Hmm, you add an interesting twist to the equation…. NEW DEBT…. I’d have to think long and hard about taking on a new car loan. We were able to pay cash because we had some buyout money in reserves. Those dollars’s ‘freed-up’ once I became reemployed. Had that not been the case would probably would have limped along and made only the smaller purchase – the commuter car – unless the debt car completely collapsed.
I ‘get’ the arguement for the debt option but as you suggest, that’s hard to swallow after working so hard to knock out the pre-existing debt. I suppose I might pause my snowball while saving money for the van. That forces you to remain dilligent and would likely empower you to accept another interim solution.
Great stuff, thanks for sharing!
Dave
I think you made a sound decision. Your wife’s car could have had “the wheels fall off” at almost any time. Do, or would, you really want to be driving a no A/C Jeep for the first few month of your new job in the summer heat?
Thanks Jerry…. yeah, I’ll be the first to admit that the summer heat played a role in our decision and you suggest a great point about it being the FIRST few months on the job… riding 45 mins to work each morning in a sauna is no way to make a good first impression with the many folks I’ll be meeting for the first time every day.
Thanks for contributing!
Dave
Well. . .I think Dave would say you overpaid for your cars! I think a better solution would have been to fix the AC on the old Jeep for your wife, and buy a $4000 commuter car for you. But I guess that’s water under the bridge now, right?
Another idea:you able to take advantage of the Cash for Clunkers program? The Jeep might qualify.if you still have it.
Hope it doesn’t sound critical. DH and I have rationalized several car purchases over the years. But I’m so glad to be out of the land of car payments that I never want to go back.!
Andrea
Good points and thanks for sharing… I suppose you’re right in that there was likely an interim step with smaller upgrades in cars. To be fair, we did that once about 3 years ago to get the debt-car for my wife and had we a longer runway to (non mortgage) debt freedom we would have proudly done it again. In this instance (and in my mind) the short timeline is the pivot point. We’ve killed debt for 2+ years so we could have waited a couple more months or we could enhance the car situation with the buyout cash (no car payments) knowing that we have the disciple and debt reduction muscles in place to power the rest of the way.
In my mind, that’s why this is such an interesting question… there is no horribly wrong choice (of our 2 options) but there surely is one better than the other. I honestly wonder if we would have opted for the other route had the timeline not been June, July, August, and September in HOTlanta!
…hey, and I’m quite proud of my Jeep! It never had AC so installing a system would not have been real practical but your thinking is on target. It’s in great condition with low miles for its age – due to my traveling every week for years. We’re actually planning to keep it as a third vehicle, or as a toy really… Hmm, perhaps that’s the real question in this process….
Thanks for contributing!
Dave
I had to do this- I was driving an 8 year old pickup, which I was content to drive until the wheels fell off. Until I had a baby, and all the sudden the pickup wasn’t the safest possible option (could still use it with the airbag off). But more importantly, I could no longer carpool, which started costing me $50 a month in extra gas. So I bought a used SUV for about 10k, and with accelerated payments will have it paid off by March. The trade off was extending my time in debt by a few months, as I had to slow down payments on my last credit card and my student loan debt. But it was totally worth it- I’m saving money carpooling, and I’m after I help a friend move, I’m going to sell my pickup and use that to pay down the new car debt even sooner.
Cat´s last blog ..Resemblance
Thanks for sharing Cat… sometimes life does change and we need to be flexible to those needs…. but we need to be mindful of our original objectives too…
1 pt for my making a good decision
Thanks!
Dave