We received a bad review and we wanted to address the points made by the reviewer. We welcome all criticism. We wanted to take a moment to explain our thought process and how our budget philosophy differs from the reviewers.
Each episode we talk about how grateful we are for the wonderful reviews we receive. Well sometimes they aren’t so great, but we still appreciate all the opinions. It’s important to us to read and share even negative feedback because we know we’re certainly not perfect. So we’re going to take this episode to discuss a review we received over the summer that brings up some good points.
I want to preface this by saying we don’t view this podcast as a money how-to or a budget tutorial. We see it as our financial story – we like to chat about how we budget as a couple and how we make decisions about money. We make some bad choices, some ok choices, and even some good ones now and then. We never say that our way is the only way or even the best way, but we do think it’s important to get people thinking and talking about money. It shouldn’t be a scary or taboo subject.
So with that said, let’s unpack this… it seems like the main gripe here is the amount and frequency with which we borrow money. Fair enough, you’ll find a lot of schools of thought that believe you should never borrow a cent – if you don’t have the cash outright, you don’t get it. That’s certainly not a bad way to look at things, it means you never have to worry about $10K credit card bill with a 20% interest rate because you’ll never have put yourself in that position in the first place. Awesome! And if you can manage this lifestyle and it’s what feels comfortable to you, then go for it.
At least in our case, we chose not to go the no debt route for two reasons: 1) We felt we couldn’t achieve some of the goals we wanted without borrowing. For instance, we wanted a home that would fit our family with a yard. We would have had to save for at least 15 years if not 20 to accomplish that goal in cash. We didn’t want to raise our son in an apartment nor did we want to wait until we were in our 40s to have children. So we used a mortgage. We did, however, try to do this smartly. We bought below our means, paid extra on the principal every month, and have refinanced to a 15 year now that our incomes are a bit higher. A conservative goal we like to set for your mortgage is 25% of your take-home pay. We’re at about 24% with our new 15-year mortgage – so we feel comfortable with that.
The second reason.. we feel very comfortable with our ability to pay the money back quickly and responsibly. The review mentions that our solar panels, car, and remodels, all of which were done using loans. Each of these we could have saved for and paid in cash if we were willing to wait an extra year or so. For a lot of people out there that may be the best route.. Patience is a virtue and paying in cash (or debit that’s in your account) is ideal. We were impatient and didn’t want to wait – perhaps we should have, but that’s a choice we made. We did, however, borrow responsibly. We ensured that each item was within our means to pay back quickly and that if one or both of us lost our jobs we could still handle the payments within our crash fund for 3-6 months.
We’re confident that we can stick to a budget and put extra toward debt each month – the loan length maybe 5 years, but we make a decision to pay it off in one year. Basically we’re paying a slight premium (in interest) to buy the thing sooner – right or wrong that’s a choice we make.
For the solar panels, we had a $36K loan that we paid off in 18 months.
The electric car was $23K are still paying on, but it’s a 0% interest rate, we have about $11K left.
Credits for car and solar panels were $25,700! If we didn’t do it at the time we did, paying in cash would have cost us more than getting a loan, paying it off quickly, and paying a small amount of interest.
The remodel was $30K paid for with a second mortgage that we paid off in 11 months.
Returning for a second to the review – there are two things we disagree with: the fact that we’re broke and that our son will not have his college paid for. I guess it depends on how you define broke – We are fortunate to have a fully funded crash fund, 15% or our pay going to retirement, no credit card debt, and a mortgage within 25% of our take-home pay. To us, that isn’t what we’d consider broke. But if you believe that any debt = broke, then I can understand how you would describe us this way. This may be just a difference in philosophy.
On the other hand, I do want to emphasize that our son is our number one priority and we began saving for his college within the first month of his life. Now that our income is a bit higher we have upped our contribution from $250 to $350 a month. This amount is right about where we want it given the amount we believe we’ll need to save. We’ve done several calculators online and this amount will get us about $135,000 by the time he’s 18. This should be for 4 years of a public in-state school. If for whatever reason this amount doesn’t quite pan out, we’ll have already paid off our house and would easily be able to cash-flow the remainder.