How to Prioritize Financial Goals When You Can’t Pursue Them All

“Okay, Sergio’s question is up next. It says, ‘If I keep investing 25% of my income, I won’t have cash to pay for a vehicle purchase in 1 to 2 years. Would you recommend lowering my investment to the employer match, then pay down the payment for the car? So, I think what he’s saying is, would you suggest that I lower my investment to get to a down payment for a car, right?'”

“Yeah, here’s what happens. We get so excited about life moving in a positive direction, and man, I did this. I didn’t max out my Roth this year, but now I’ve maxed it out, and I was saving 18%. Now I’m saving 25%. Man, I’m crushing it. Things are going awesome, and then boom, we’re in the messy middle. Maybe we’re young. There’s not a lot of ton of money left over, and then we’ve got to come up with a car payment. We’ve got to say, ‘Okay, well, I know I’ve got to do this 20/3/8 thing, and I don’t have the down payment saved up. Maybe I can trade in my current car.’ So, it’s not possible for me to save 25% and still do the other life things that I have to do. Well, I just want to tell you, Sergio, that’s okay. Sometimes life happens, and sometimes when life happens, we have to take steps back. In the vocabulary, that should be one of the things that we add—what we think following the vocabulary looks like and in reality what following the vocabulary looks like. Because it’s not a straight line up. It’s a straight line for a little bit, and then you come back, and then you go back up, and then you come back. So, if you’re in a place where you don’t have the free cash flow with your savings to get to the down payment you need for reliable transportation, then yeah, I think you probably do have to back down your savings sum in order to do that because you’ve got to have a car if it’s necessary for your life to get you to your job, and it’s something where you really have to replace the one that you have. That’s just the thing you have to do.”

“But you also have to be a financial mutant about it. When you do that, and once you get to the down payment, then you have to aggressively make up for lost time. You have to figure out how do I get back to that 25% as fast as possible. Well, I had a bunch of questions that ran through my head as soon as I had this come across from Sergio. That’s what personal finance is always a game of different variables. The first thing that popped into my mind—what type of car? I mean, Sergio, if you’re trying to—I mean, you’re already saving and investing 25%, but now if you’re trying to get to a BMW or a Mercedes, that’s a Step 8. That’s an abundance goal. So, I don’t want you cutting down your 25% saving and investing percentage if you’re trying to buy a luxury or super nice car. A great point that that’s a failure. But if this is a car reliable—because here’s the thing about vehicles—cash is always the best. I mean, I think people think, ‘Gosh, you guys are always about financing cars.’ No, we’d love for you to pay cash for it, but I just recognize there are moments in my life where I didn’t have enough cash, like when I graduated college or other things where I had potential but I had no cash, you know, or I didn’t have enough money to pay cash for the vehicle. So, I had to use 20/3/8, and that’s why we designed the policy, the program, to where you put 20% down, don’t finance more than 3 years, and it doesn’t exceed 8% of your income. That checks all the boxes to make sure you’re not driving around in a clunker. Sometimes, if you only have two grand in your pocket, that’s not going to buy you peace of mind. That’s going to buy you a lot of heartache. There’s even a song—I can’t remember if it’s a $2,000 car—or there’s a YouTube video of a great, funny video that one of my listeners sent me of what driving a $1,000 or $2,000 car is like because it’s just hilarious. I’d encourage everyone to look at it. But if you’re—I want you to think 20/3/8 is a Corolla or dependable transportation rule. It’s not anything to be a bridge towards luxury. We even built that into the rules.”

“So, the type of car matters. And I’m not against what Bo said, though, because I do think that vocabulary does not work in a completely linear fashion where it’s just a step up into each step. I think that there are times where you might look at your, and you say, ‘Hey, I’ve got six months of cash reserves. If I buy this car or have a really significant down payment on this car, it might take me back to four months of cash reserves or three months of cash reserves.’ You still kept yourself. You knew where your guard rails were, but yes, there are going to be changes in your financial order of operations and where you are in the list. And, by the way, go get your free copy at Learn.Money.com resources. But 20/3/8 is to be a guide to get you to reliable transportation. And I commend you for your 25% that you’re saving and investing in, but I would encourage you. It also depends on your income because if somebody—if you make 50, $60,000 a year, I’ve got to tell you, I would much rather you do a—you know, if you’ve already made it through your emergency reserves and you’re now closer to 3 to 6 months and you’re looking at your Roth IRA, it’s going to be scary if you don’t fund a Roth IRA just so you can go buy a car. So, that’s why there’s some nuance into this decision matrix that you’ve got to take into account because there’s a reason the government restricts how much you can put in and who can put in based upon income. I don’t want you to miss out on some of those awesome opportunities. So, it’s very nuanced based upon how reliable—what type of car can you afford and but also not derailing your long-term future because of an emotional decision with a car. Great.”