Having a cushion of savings is a good idea on many levels. A savings account can protect you in the event of an emergency or unexpected cost. Surely you've had your car break down or require repairs resulting from an accident. Having good savings allows you to pay for these. Same with stuff around the house. A broken appliance that needs replacing. Not nearly as stressful if you have savings available to cover the expense.
Savings can do so much more than that, though. A good savings cushion can allow you to take advantage of opportunity, and can even lead to additional savings when purchasing items or services.
Our recent camper purchase is one example.
My wife and I have tossed around the idea of purchasing a camper for the last couple of years, after we found that we really enjoy taking vacations this way, but understanding that it wasn't a practical solution to camp in a tent with two kids under the age of three. Looking at the camper as something that could serve us for a number of years, we allocated some money towards it and began saving for the rest, as well as taking time to understand the ins and outs of camping, and working to educate ourselves on the type and model that would suit the needs for our family, all while remaining within our budget and providing for long term use.
Last fall, we decided that we would look to purchase a camper this spring. We were close on our savings goals, and our research had it narrowed down to the model, type, size, and features that we were looking for. We visited camper shows, became familiar with the brands we wanted, and did our research as to the camper type we wanted, figuring that once spring came around and selling season started, we would begin the work to get our camper.
However, my wife started looking around, and she actually found a couple of campers for sale last fall that met our criteria. The first person we contacted never responded, so presumably that camper sold quickly. However, she found another one that was even better than the first, and was cheaper.
In fact, it was about $2,000 cheaper than what we had budgeted for the year, make, model, and features of comparable units. With our budget, we likely would not have been able to afford a camper at the ‘book value' price, but the actual price brought it in our budget.
We contacted the owner. He got right back to us. We took a look at it, ran through a checklist of items to look for, and even though we weren't going to be using it for another six or seven months and even though we didn't have the full amount saved for it, we put our offer in and it was accepted. A few weeks later we were the proud owner of a new camper. Now, comes spring, we have one big item already crossed off the list: Buy the camper.
But, you probably noticed how I sort of glossed over the whole ‘paying for it even though we didn't have the full amount saved' and went over it like it was no big deal.
Because it wasn't.
See, we had a portion of our cash and money market savings earmarked toward a new camper. Our total budget included a portion of our expected tax refund for 2012. But, because we had a savings balance that covered not just the camper savings, but savings for other things, we were able to, in essence, borrow from ourselves.
Our savings includes allocations for things such as:
- Home Improvement Projects – New roof, tree removal and maintenance, etc.
- New car – In 3-5 years we might be looking at replacing one of our cars
- Car repairs
- Emergency fund
And a few others.
Because I knew that all of these expenses for the allocations above wouldn't come due at once, and looking at the chances of losing my job as very low, we were comfortable taking the risk of, effectively, taking a loan on other categories. We essentially ran a negative balance in the ‘camper savings' category.
So, when the refund came in last week, we simply applied the portion that would have gone toward the camper against the loan we had taken in ourselves.
Was there risk involved? Sure. But in our eyes it was minimal enough that it was worth the chance. Not to mention, the loan against ourselves only took about 10% of our total savings, so we were still well covered.
Then why did we do it?
Simple, for the opportunity.
If we had waited until spring, there would have not only been more sellers but more buyers. We would have been competing with a larger number of people looking to buy campers, and likely either would have had to pay more for an equivalent camper that we got or we would have gotten a camper at around the same price that was either older, had less features, or was not in as good of condition.
As it was, the perfect camper came along, and having a well stocked savings account allowed us the opportunity to make a move on it even though it changed our plans.
Sometimes, opportunities come along that can save you money or make you money, but many people can't take advantage because they don't have the up front money available to take advantage of the opportunity in question.
What opportunities have you taken advantage of by having the savings available to do so? Conversely, has not saving enough cost you the opportunity to take advantage of something?