Fire Truck Loans: How much can you borrow?

A few weeks ago I wrote an article about how much savings the typical fire department has in reserve. Click here to read that article.

I got quite a few emails about the opposite. How much debt is OK? and how much debt is too much?

Just like the saving question is a formula, the borrowing question is also a formula.

Quite simply, the amount of debt you can afford depends upon your situation.

First, here's the math.

1. Determine your recurring income. Don't include such 1-time items like non-recurring grants or a special fundraiser.
2. Subtract your recurring expenses from the recurring income. Don't include such non-recurring expenses such as 1-time equipment purchases or a rare and significantly large repair expense.

The amount of money you have when you subtract your normal operating expenses from your normal income is your Cash Flow. This is the money you make payments from. This is the first part of the formula.

Now, here's the formula:

You can afford 80% of the Cash Flow for payments. So, take 80% of your cash flow and that is the total payments you can afford (including current outstanding loans). You can't spend all your cash flow or you'll find yourself in trouble quickly.

The reason: you'll need some cushion for those unexpected expenses you deleted up top. After all, you will have major unplanned repairs. You don't want to not have the money for the repair because you've spent it all on payments.

Stay safe!

John R. Hill
Apparatus Budgeting Consultant
ENVIZION Financial
www.envizionfire.com