My Parents Had One Money Rule. It Got Me Through 2008.

My parents had one money rule they never broke. If they couldn’t afford it, they didn’t buy it. No exceptions, no borrowed money, not once in their lives. I’ve kept that rule word for word ever since my first crash taught me the price of ignoring it, and it’s the reason I came through 2008 still standing. But somewhere along the way I changed what one word in it means, and that one change is the whole story.

Their version of afford was simple and honest. The money is in hand, in full, or the answer is no. It kept them out of every kind of trouble, and out of most of the opportunities too. I watched both happen.

My version keeps their words and changes the definition. To me, afford was never about the day you buy. It’s about the worst year you might have to hold. Can I carry this thing when the market turns, when the tenant leaves, when income takes a cut, when health or a marriage hits a wall, when the repairs and the recession show up in the same month, without ever being forced to let it go? If the answer is yes, I can afford it, even with a loan on it. If the answer is no, I can’t afford it, even with the cash in my pocket.

And let me be straight about the borrowing, because I’ve used plenty of it. Credit bought my homes and my cars. Credit started businesses and expanded them. My parents’ rule, the way I run it, was never about avoiding debt. It’s about never taking on a debt I couldn’t carry through the worst of those years.

That definition is what 2008 tested. I went into it owning real estate with mortgages, which would have horrified my parents. When the crash came, the values fell hard, most of the equity disappeared for years, and a few properties were worth less than what was owed on them for a stretch. I didn’t have to sell any of them. Every one had been bought with serious money down, rent that covered every bill with room left over, and reserves behind it before I ever signed, so nothing could be called due and no payment depended on a good year.

And I want to say this carefully, because 2008 hurt people in two different ways. Some lost everything and never did a thing wrong. The bad years no rule fully protects against, the lost job, the medical bills, the divorce, landed on top of a crash, and that was that. And some lost it to decisions, their own, or the ones somebody sold them. The money down was little or nothing, the rates were priced for the best case, and the loans never even checked the income. Then the equity got cashed out of the house and spent on things that lose value the day you buy them, boats, motorcycles, jewelry, vacations. All of it leveraged on one belief, that things would be this good forever. That was the opposite of afford, sold as the smart move by people getting paid at the closing. I’m not sharing any of this to stand over anybody. The decisions that saved me were made years before I needed them, and so were the decisions that broke people. Both got made early, back when everything still felt easy.

Now here’s where you’ve already met this. The bank told you what you can afford. They ran your income and handed you a number, and the number answers one question, can you make the payment. It never asks the second question, can you make the payment in the bad year. The bank’s afford is about the day you sign. Mine has to survive every year after it.

So that’s the rule, and now it’s yours too if you want it. My parents paid cash their whole lives, and I borrow carefully. The same nine words are behind both. I just changed what afford has to prove.

Talk Friday.

— Mateo