For the people asking about my current situation. I’m not a wealthy person, but we’re in decent enough shape that I’m comfortable(ish) with the risk. 30 y/o, 450k net worth. The thing is that 200k of that is home equity so I was thinking of ways to use that instead of cash to soften the blow.
Other options considered included setting aside some of the EF for recurring expenses and using the salary for everything else. I looked into selling and renting but rent for a family of four is almost 2x my mortgage payment. I want to avoid if at all possible pulling out of any retirement accounts, I’ve been maxing for years and don’t want to lose that progress.
In the doomsday scenario, I have the $30k I could use to pay off the debt. It’s just that I’d rather keep it invested and in the best case scenario I don’t lose any time in the market.
You are still focused on the best-case scenario. What is your plan if, a year from now, you decide you hate the business, you can't sell your house, and you can't find an immediate corporate job? How much accessible $$ do you have to carry you through? What's the plan then?
I'm not actually trying to fear-monger here. It's just that we've been around long enough to live through a couple of major recessions, and I can tell you from personal experience that shit can go very bad, very quickly. Because the thing is, the economic crises that tend to crash the job market also tend to crash the housing market, because no one can get the job they need to pay for the housing. We lost 2/3 of our income when I was 8 months pregnant, carried two mortgages for 13 months, and ended up losing $100K on the house we had to sell to move to the only available job. We had plenty of savings, I was at least still able to work part-time, and he found a new job quickly -- and it was still the most stressful year of our marriage, by a very very long shot. IOW: we were fully prepared for bad shit to happen, and it was still terrible.
So I get very nervous when I see you so focused on not losing out on upside gains -- on paying your existing debt by taking on more debt, so you can keep all the rest of your money invested in the market. That is effectively investing on margin, and it works great when everything is good. It's also the best way to bankrupt yourself quickly when TSHTF. And TS always, always HTF at some point.
Financial success is about balancing grabbing the upside with protecting yourself against the downside. Most of us here are very well cushioned against financial hardship because we make a lot more than we spend, which means we have built up savings, we can afford to take a paycut, we have the skills/knowledge to manage even more significant budget cuts, we have insurance to protect against the big bad things, etc. etc. etc. When make twice as much as you need and have a big fat cash cushion and skills and insurance, you can afford to chase the upside and keep everything else into the market.
The problem is, if you give up the giant firehose of cash, your risk tolerance goes way down. When you don't have a constant stream of excess cash, you lose a significant part of your adaptability/flexibility if TSHTF. And when you make less than you need, you are operating in defecit and need to shore up whatever resources you have to get yourself out of negative territory (First Rule of Holes: when you're in one, stop digging). When you're already making less than you earn, you just can't afford any more financial hits, because you no longer have the nice cushion to protect you against bad shit happening. So just flat-out can't afford to worry about chasing the upside when you're sliding downhill to zero.
So, while you are still flush with cash, you need to plan for the next year of negative income. And that means cutting down your budget as much as humanly possible -- now, today, while you still have extra cash. It means throwing all available cash into the EF that you will need to tide you over for that year. And it also means planning for what happens if the low income lasts for more than a year, rather than assuming that whenever you're ready to make the decision on the next step, the job market and housing market and economy will be strong enough to allow you to do whatever it is you decide you want to do. The more accessible cash you have, and the less you need to spend every month, the longer you can ride things out if the world isn't optimal a year from now.
