Saving advice needed

**Tabs** · 03-22-2014, 08:26 PM

Based on what is written so far, I would increase the size of your emergency fund. If you end up not using it, you can use it to pay off the car later.

**isaac** · 03-23-2014, 01:02 AM

Originally posted by Tabs View Post

Based on what is written so far, I would increase the size of your emergency fund. If you end up not using it, you can use it to pay off the car later.

I don't understand "if you end up not using it" .. When would this occur? You don't know when an emergency will happen. I agree with you that they should build an emergency fund, I disagree that they should ever spend it on a non-emergency.

**Tabs** · 03-23-2014, 03:51 AM

Poor wording on my part then. Let me elaborate.

Let's say if you have an emergency fund goal of $10k, and you have a car loan that is $10k, and you manage to save up to $20k in total cash savings first, by then, you can have the option to pay off the car and still meet your own emergency fund goal.

Or, if you experience some kind of financial duress, you will have the comfort of a $20k cushion.

However, if you try to pay off the car loan early (assuming simple loan with set interest), then you will not have that kind of flexibility since anything you put into the car loan is basically "gone".

**Retired To Win** · 03-25-2014, 10:02 AM

Yes, focus first on building your emergency fund... and keep it funded for emergencies only.

**jIM_Ohio** · 03-26-2014, 12:18 PM

Originally posted by JD2775 View Post

Hi there,

Typical saving advice question I guess that I am hoping for some answers. Currently I have a work sponsored 401K that I contribute 9% too (and get matched 9%). I am close to maxing out a ROTH IRA as well. I have a high car payment at a low interest rate (2.9%) that I paying about 30% above the minimum monthly payment (to pay it off faster). I have a regular savings account with very little money in it.

I guess my question is, is it worth it paying off the car faster? (I just bought it and am 3 months into a 60 month loan) I'm thinking I may need to build my regular savings account up first. I don't know.

Any advice on that? Or my strategy in general? I am 39 years old if that matters

Thanks

If it works for you, keep doing it.

You have a good approach, I might suggest thinking it through beyond paying off the car.

Why are you paying off the car early?

If its because you want to finance a motor cycle, pool or something else, STOP! Build the savings
If its because you will put 130% of the car payment into savings when you are done, GOOD! you will achieve your goal.

I am a big fan of needing "free cash flow" in budget for emergencies. Meaning if you have an emergency fund of $30k but no plan to "re-fund" the EF if you tap into it, you really are 2 disasters from financial ruin (as opposed to people with no EF which are only 1 financial disaster from ruin).

Meaning if you own a house, and know your roof would cost $10k to fix, and every 16 years you need a new roof, every year about $500 should be added to EF to fund this...
do the same for HVAC (every 15 years, new HVAC of 1000 is $120 per year), do same for hot water heater, major repairs, carpet, car and similar, and you will likely see a HUGE number, like $1000/month or so (keep in mind I suggested adding a car to this line item).

This means the 2 years you have a car payment, that is $1000/mo to car and $0 to savings, in 2 years when you have paid off $24k of car, you have $1000/mo going to savings. If the hot water heater blows, you pay for it out of the $1000 cash flow, not the EF. If the roof goes and costs $10k, you know you will have it paid off in less than 12 months. If you need a new car, new roof and new HVAC, you know you have $1000/mo to throw at the problem in addition to the EF.

Helps solve problems better.
And you need that $1000/mo number for proper retirement planning (big purchases).

Saving advice needed