Make Sure You Have the Important Things Covered First

Dear Dave,

My wife and I make about $180,000 a year combined. We’re also debt-free, and we have no kids. We’d like to start planning to buy a nice piece of land sometime in the near future. Do you have a rule of thumb when it comes to determining what percentage of our savings we should put toward a large purchase like this?

Daniel

Dear Daniel,

Honestly, I’m not sure there’s necessarily a specific percentage for this kind of thing. Since you guys are already debt free—and congratulations on that, by the way—I’d advise first making sure you’ve got a fully loaded emergency fund of three to six months of expense in place. I’d also recommend you have some sort of retirement savings plan going before buying a piece of land.

You two have done a great job with your money, so in your case, it sounds like any other cash you might have sitting around is just wealth. So, if you’ve got an extra $100,000 sitting in a savings account in addition to all these other things, and you’d rather have $100,000 worth of land instead of that bank account, I’m good with it. Do you understand what I’m saying, Daniel? In my mind, it’s more a matter of ratios than percentages.

Now, this would all change, of course, if your household income was $50,000 a year instead of $180,000 a year. And I wouldn’t advise anyone to put building an emergency fund or saving for retirement on hold while they saved up to buy a piece of land. There needs to be a sensible balance. And that means making mature, grown-up decisions, and ensuring you have the really important things in life covered first.

Great question, Daniel!

— Dave