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      04-13-2013, 08:38 PM   #51
alee0729's Avatar

Drives: 2013 E92 M3, 2001 E46 330Ci
Join Date: Mar 2013
Location: New York, NY

iTrader: (0)

This is all a game based off of savings, not earnings. If you were to lose your job tomorrow for whatever reason, and not be able to return to work for 8-12 months, whether by circumstance or choice, what liabilities you have at that junction determine how screwed you are.

You'd have to be walking around with blinders to not see significant changes in the job market in the last few years -- being young does work a bit more in your favor. But old guys like me in their late 30s should start worrying, and folks in their 40s and 50s should be mortified.

Having credit card debt is bad. You're overextended.

Having a home assumes you can sell it if you get in trouble. It also assumes you didn't buy your home at a time when prices were at their peak, or you're carrying a liability.

Having a car loan assumes that you can turn it around and sell it and afford selling it for potentially less than what the balance of your loan is. Get a $50k car loan, hitting hard times with $45k to pay back and selling the car for $44k still means you have to find $1000 somewhere.

Your safety net can be whatever you believe can save you if you get into trouble. Could be wealthy parents or relatives. Could be a savings account. Could be knowing you can comfortably take up a life of crime to finance your lifestyle when you're unemployed. Could be a job skill that you feel is in-demand enough that long periods of unemployment are highly unlikely (but don't get too cocky here).

Bottom line: Cash flow assumes you have income. Your liabilities determine whether you end up like the dot-com kids who all had to move back home with their parents when the walls came tumbling down.