Finish Baby Step 3 First

by | Sep. 06, 2010

Dear Dave,

When is it okay to buy toys for the lake - things like boats and jet skis - when following your plan?


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 the wrong way.

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

- Dave

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