Loaded question. I know.
If you’ve been around here for the duration, you know I am anti-debt. Make do, or do without. The best things in life aren’t things. Suck it up and pay it off. Debt free is the way to be.
Yes to all of that!
But we still took out a loan for part of our recent basement digging/finishing and dysfunctional kitchen remodel.
We hemmed and hawed and researched and studied and prayed and prayed some more before taking the plunge, and that’s what it came to. Why am I telling you? What business is it of yours? Well, a couple of things. 1) We’re all friends here and we can learn from one another. 2) Many of you have congratulated us on saving for the house, some have even mentioned cash, and you’re kind of freaking me out. I in no way want to lead you astray. I don’t remember ever declaring “We paid cash!” and I don’t want you thinking we’ve done something we haven’t! So here it is, just in case.
“Congratulations on saving for such a great new space!”
Thank you! Yes, we did save. For fifteen years, we saved. Before we were even married, this moment, this future need, was being planned for. I have added to my own retirement and other investment funds from the moment I earned my first “big girl” teacher pay check. When we married and were earning two full-time incomes, we lived on (mostly) his and put mine into savings. When we bought our first home we declined the bank’s offer for a loan we could afford (while giggling at the absurd number), and purchased a house half that price. (Stubborn, we are.)
My income, and our savings, was cut in half when our first baby arrived on the scene and I went back to work only part-time. That lasted two years, and then I quit teaching completely to stay home full-time with my two little loves. “It’s a good thing we saved when we did!” we’d often say, knowing that money would now be tight and our savings goals would creep.
Then we moved to Tiny Town. Our home sold in less than 24 hours at a nice profit, and we traded suburb convenience for community. Finding a new home was decidedly more difficult, and we reluctantly purchased a 100 year old fixer-upper (that made me cry, because I am pathetic like that) and vowed to make it ours. We also vowed to pay off our 15 year loan in 7, and we did it in 5. We’ve been completely debt-free, no mortgage, no vehicle loans, nothing, for almost 3 years.
In the meantime, we added 3 children to our family and fell in love with our too small, imperfect, paid for home.
Five children. 1,400 square feet. Three bedrooms. One bathroom.
That’s where we were at a little over a year ago when we called the basement guys. We had already agonized and prayed over (why the agonizing? because we’re human) our options:
- Buy a bigger home. (One problem. We live in a Tiny Town. There truly are NO homes for sale here to accommodate our family size. The ONE that came open in the last 3 years was snatched up before we knew it was for sale.)
- Build a new home. (Gag! I’m joking, but goodness, that would be a nightmare for indecisive, “whatever works” me. Picking out All.Of.The.Things?! Never. Also, the cost. The cost was prohibitive. And, honestly? We think older homes are built better. There. I said it.)
- Make this home work. (We loved our location. We loved our yard. We love old homes and think they’re worth the effort. They have good bones. Also? We could double the size of our home and redo our wacko kitchen for less than building new.)
We decided to make this home work. (May I pause for a moment and just share that there are still rooms in this home that are quite a mess, like our upstairs bathroom and our bedroom? Ah, well. Someday…)
We ran numbers. Got estimates. Pored over mutual fund statements. Warned our financial adviser that there soon would come a time that we’d be taking money out instead of faithfully putting it in. Wash, rinse, repeat. For over a year.
We had the cash to dig the basement. (And even to finish part of the basement.) Yay! We also had funds to cover the finishing of the basement and the kitchen remodel, but that would wipe out our savings. Completely. Well, not completely. Most of the retirement funds would still be there, but if we’ve learned anything, it’s Do Not Touch The Retirement Funds.
Do you know what scares me more than debt? Having no savings cushion with a family of seven. (Some of you are thinking I’ve forgotten our sixth baby. I have not. We found out about #6 the very day we started digging the basement. Ha!)
So, the cushion. We need a cushion. My husband’s pickup is a 1994 model that legally rides one passenger. Our children have crooked teeth. We are firm believers in expecting the expected. Things happen, and while neither of us was ever in scouts, we want to be prepared! Also, the accounts are interest bearing. That snowballs over time, and it really would be to our advantage to leave some money in there to work for us.
We weren’t comfortable wiping out our funds, but neither were we comfortable taking out a loan that would equal twice what we originally paid for our home. Ack! We were advised to take out the full loan, leaving the funds to accrue interest, but we just couldn’t stomach it.
In the end, we settled on a compromise. We took out a large sum from our savings (which hurt), and a slightly larger sum in a loan (which hurt even more). I would likely be sick about the whole thing, but oh! we are enjoying our space! And that’s why we save, right? So we can then spend on what we want and need. We know it is money well spent.
Right or wrong, here’s how we justified our loan:
- We have no other debt. None. In fact, we were asked multiple times when presenting our application to the bank, “No mortgage? No vehicle loan? No payments of any kind?” Nope.
- We still have savings. If some catastrophic emergency happened tomorrow, we could dig out the loan total and pay it off. It wouldn’t be smart in most situations, but we could do it in an emergency.
- It didn’t make sense to dig a basement (with cash) and not finish it for another 5 years while we built up more cash. We would have survived just fine, I’m sure, but we have no regrets about spreading out and making this home more livable and enjoyable for our large family. Also, we are not DIYers. Doing it ourselves, while it might save money, would take for.ev.er. considering our pack-o-small children, his coaching, weekend ball tournaments, etc. It was worth it to us to pay to get it done.
- In all the years that I’ve been home with our littles, I have worked to supplement the family income. Living on a teacher’s salary is not for the faint of heart. His income certainly meets all of our needs, but what I am able to do by saving and earning while at home makes life a little more fun. More on that tomorrow. Or soon. (I better not promise tomorrow with my on again off again blogging record…)
I still hate loans. I still hate being in debt, especially after being completely debt free for nearly three years. But it was the right choice for our family. So tell me (be gentle, please!), Is it ever okay to take out a loan?