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Possibly a misuse of the term, in its strict financial sense. Anyhow…
For decades I’ve heard about the value or use of leverage. It’s most easily recognized in our homes, often bought with a small down payment and a big loan, so that even minor increases in home value in early years create impression of a big return on our actual expenditure.
Yet last year, when I took on several major home “repairs” (a loose term for work that included demolishing and rebuilding a decrepit garage), I couldn’t bring myself to take out a home equity or personal loan. Instead, I spent down “emergency” cash and withdrew longtime holdings from a taxable brokerage account to cover construction costs. Looking at my accounts now, some months after final payments and inspections, there’s substantial but slow rebounding. It’s going to take a while to recover, maybe a few years of financial indigestion.
Yet I sleep better if I’m not in debt. Also, I felt as if (true or not) with the market near/at a peak, things could downswing into bear category reductions, maybe lasting a few years. So I might as well sell at the top, capture some gains, put them to work.
It seems to me that the Humble Dollar community values more a family’s steady if smaller gains rather than engaging in bold leverage plays. Am I right about this?
Or am I a chump to spend real money in hand if possible for major rehabs, instead of borrowing? It’s more than a moot question, as follow-on expenses are sure to arise, maybe roof or HVAC or another unforeseeable surprise.
I don’t think you’re a chump at all. I actually agree with your strategy.
Leverage has its place, but so does peace of mind. Sometimes the spreadsheet says one thing, but your gut and your sleep say something else. At this stage of life, that matters.
Could you have borrowed the money and maybe come out ahead if the market kept climbing? Sure. But real life is not a clean math problem. Markets fall. Rates matter. Repairs run over budget. And roofs, HVAC systems, and other surprises do not wait for the perfect financial moment.
To me, you used money for its purpose. You had a real need, you had resources available, and you avoided adding another monthly obligation. That is not being foolish. That is being disciplined.
I also think “emergency fund” can be too narrowly defined. A major home repair that protects the safety, function, and value of your home sounds like a legitimate use of reserve money to me.
The downside is real. Rebuilding cash takes time, and watching accounts recover can feel uncomfortable. But I would rather rebuild savings than carry debt I didn’t want.
So no, I don’t think you were wrong. You chose stability over leverage, peace of mind over optimization, and steady progress over another payment.
Sometimes the best financial decision is not the one that looks perfect on paper. It is the one that lets you sleep at night.
~ Jeff
Thanks for you thoughtful comments. It’s been worth the mild angst of the slow rebuild of accounts to also have the pleasure of being debt free. “Good enough” is my preference, not perfect, not even optimal.
I’m 100% with you on this one. One key financial aim that we have always had is to pay down debt as quickly as we can, and avoid taking on any new debt. And it worked well for us.
I get it that the math says that taking on debt can lead to a better financial result, rather than dipping into investments. But we all need to sleep at night, and debt can interrupt your sleep!
With regards emergency funds, we have never had something we might think of as an emergency account. But we have always had some way to access funds if required. Sometimes that was by drawing down on investments, which ran this risk of selling at a loss if our timing was bad. But the benefits of being invested over the long term have far outweighed the downside of selling a portion of an investment at a loss (which has happened).
Having access to funds (even at a loss) might be all we need for most household emergencies. I’ve also seen reference to use of credit cards for a very short term cash flow problem. A few weeks to stretch out invoices payments can help.