I don’t need an answer fast as this isn’t about a pending transaction. It’s more a question of philosophy, or maybe fiscal wisdom, and I’m interested in others’ points of view.
Scenario #1 - you want to buy a car that costs $25K. You have $50K in savings, so it’s doable in cash, and you won’t leave yourself without reserves.
Scenario #2 - you want to buy the $25K car but you only have $30K in savings.
Scenario #3 - you have no savings and you inherit $30K and you want to buy the $25K car.
Scenario #4 - you have 3 months of living expenses in savings and you inherit enough to pay off your mortgage - do you pay it off or invest/save the money? What if you were living paycheck-to-paycheck, but by paying off the mortgage, you effectively get a “raise” in the amount of your monthly mortgage payment?
My husband and I discuss our finances periodically, especially now that we’re both giving serious consideration to retiring, and the opposing sides of the issue come down to having a cash cushion or being debt-free. There are many variables that seem to block a one-size-fits-all answer, including some we’ve probably not considered, hence my question.
Do you have a rule of thumb about when to pay and when to go into debt? What points do you consider when making the decision? In the long-term view, do you factor in possible inheritances or the sale of current assets?