All About Ratios

Sandy is on Baby Step 2. She made plans more than year ago to finance a birthday trip for her 40th birthday. It's been canceled, and her husband wants to take her to a fancy dinner instead.

QUESTION: Sandy in Arizona is on Baby Step 2. She made plans more than year ago to finance a birthday trip for her 40th birthday. It’s been canceled, and her husband wants to take her to a fancy dinner instead. Dave explains how to determine what’s reasonable.

ANSWER: I don’t know how much debt you’re in or what your income is and what a fancy dinner is at your house. I have noticed that “fancy dinner” means different things to different people, so I would just say that yes, you need to celebrate your 40th birthday. That’s fine. In the middle of Baby Step 2, can you take a little bit of a breather and do something reasonable? Yes.

And how do you measure reasonable? Reasonable is based on ratios. If your household income is $300,000 and you have $19,000 left in your debt snowball and you spend $200 on a dinner, whoopee. If your household income is $23,000 and you have $65,000 in debt and you spend $300 on a dinner, you’re out of line. This is about ratios—looking at your income versus your debt versus the expense of the dinner. That’s the thing. That’s where I would be.

Yeah, if we define “fancy dinner” that way, then sure. But I’ve got to tell you the best vacations I’ve ever had are ones that don’t follow me home. The best food I have ever eaten is food that I could afford. It’s no fun going to an expensive dinner knowing the whole time that you can’t afford it. It gives you indigestion! So just kind of put it in the ratio situation and make it a reasonable thing in your world.

Sharon and I love to eat nice dinners—fancy dinners. It’s a very, very small percentage of our world today, and yet we still look at that and we go, “Wow! Look at that ticket. I remember when we could feed the whole family on that.” It wasn’t that long ago because of the different restaurant choice and because food prices have gone up over the years.

Yes, it’s okay to enjoy some things as a part of your handling money well, but you’re always looking at ratios as to whether you’re out of line or not.

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