Save up, pay cash for your toys - Daily Oklahoman

Posted: 05 Sep 2010 09:57 PM PDT

DEAR DAVE: When is it OK to buy toys for the lake — like boats and personal watercraft — when one is following your plan?

Anonymous

DEAR ANONYMOUS: I'm a lake guy, too. So, you've hit a soft spot with me on this question. Still, you have to be an adult about these things, and here are a few rules.

First, you should be completely debt-free except for your house. Second, you need to have your fully funded emergency fund — that's three to six months of living expenses — in place. In other words, I want you to have completed the first three Baby Steps. And remember, no matter how shiny and cool it may look, buying a Sea-Doo is not an emergency! Save up and pay cash for your toys.

Remember this rule of thumb when it comes to toys. With the rare exception of collectibles, anything with an engine goes down in value. You should never have more than half of your annual income tied up in the total of all your vehicles. It would be pretty stupid to make $60,000 a year and have $40,000 tied up in cars, boats and other toys. That's way too much money tied up in things that go down in value.

Always make sure your family is well taken care of before you go out buying toys!

DEAR DAVE: My wife and I are active-duty Marines. She's planning to get out in a few months, but I'm staying in for the long haul. You recommend saving 15 percent for retirement, but how does that apply in my case when I'll be getting a good pension after 20 years?

James

DEAR JAMES: I'd like to see you do both. Just imagine the money you two would have for retirement with your military pension and a big pile of cash from having saved 15 percent of your income over the years!

Having options is a great thing. Think about all the things you could do down the road if you save for retirement and have your pension in place. You could pay cash for a home or even open a business when you retire from the military. And these are things you probably wouldn't be able to do working with just your service pension.

You've got a great future if you'll just keep plugging along and saving, James. Let the military do its thing, and you two keep pumping 15 percent of your income into Roth IRAs and pretax retirement plans. It's going to be pretty cool!

E-mail questions for Dave Ramsey to davesays@daveramsey.com. For more financial advice, go online to www.daveramsey.com or call (888) 227-3223.

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