Finish Baby Step 3 First

A Twitter listener asks when it’s okay to purchase toys for the lake on Dave’s plan. Dave explains.

QUESTION: A Twitter listener asks when it’s okay to purchase toys for the lake on Dave’s plan. Dave explains.

ANSWER: I’m going to be an adult about this. There are a couple of rules. Number one, you need to be out of debt—everything but the house. Number two, you need to have your emergency fund in place because buying a Sea-Doo is not an emergency. That would be what we call Baby Step 3. Then you can buy a toy or two.

Here’s the rule of thumb on toys: Anything with an engine in it goes down in value with the rare exception of collectibles. You should not have more than half of your annual income tied up in things that are going the wrong way. If you make $60,000 a year and you have $45,000 in cars, boats and Sea-Doos, you’re stupid because you have too much of your financial juice tied up in something that’s going the wrong way. The second thing is you have to pay cash, and the caveat before we start all that is that you’re debt-free with an emergency fund in place. That would be my plan. You don’t buy toys when your family is not taken care of.