Another "what would you do" financial situation

[HandBanana]

That depends greatly on the value of the vehicle and how much interest rate you have on the loan.

If it's 5% interest then you're much better off paying that thing down quickly than stashing away money pointlessly in an account earning you 0.1% interest. If you have a 0% loan then what you said is true. And that's why you have auto insurance and/or gap insurance. Having a car being totaled on your commute everyday should not be a worry of you losing tens of thousands of dollars on the spot. If it is, then you have the wrong coverages.

No shit. We all have insurance. :bash: I'm making the point that it is a bad investment to plunk down a sizable chunk of change on a vehicle. 5% interest? WTF kind of credit score does that require? My bank is running 2.9 for USED cars right now. You sir are affiliated with the wrong financial institution.

 

[Repth]

Not to go off on a completely different subject, but that is also something that I personally don't put as much importance on as it seems others do (and may just be my particular situation).

For example, I know both my wife and I have good careers with year and years of experience in our fields + good education. The likelyhood that both of us will get fired at the same time (and be out of a job for months on end) is very very unlikely, but like you said still there. Plus there is always unemployment to keep us afloat for 6 months..and we can always end up working at Walmart for a few months just to get by while looking for a real job. So for us, we keep enough money in our liquid savings account to take care of house bills for a few months just so we know we have a roof over our head. The rest of the stuff we may need can easily be put on a low/no interest credit card, or worst case scenario we take a loan out on a 401k which comes with no penalties and the interest that we do pay goes right back into our own accounts as apposed to a bank.

This way we have alot of money freed up to go into 401k, which like you mentioned gets matched to a certain degree and also compounds interest. It's a much better place to keep money than a savings account earning you 1/10th of a percentage point. I'd rather dump everything I can now into my 401k to earn interest rather than stash that money away unecessarily into a savings account that gains nothing and then later I can always take out this money penalty free. Yes a 401k loan means you lose interest gains, but those are made up by excessively putting in more money there all these years rather than in savings.

Not saying that you should change your mind about how much you feel comfortable with in pure savings, but there are other ways around it and better ways to save your money than in a regular savings account.

What you described with your house bills is the exact reason behind having an emergency fund. The OP's fund does seem quite large at $15k, but perhaps he works in a very volatile job market or something of that nature. Most people are pretty comfortable with between 3 and 9 months expenses in liquid cash.

 

[ON D BIT]

Sell the $15k car and fix your emergency fund. Use the $5k car as a down payment for your new car. The payment on your new car can come from the $1200 a month you wont be putting in your emergency fund. Find out how much you can put in your 401k/matching and all that and reduce that from the $1200 a month leaving you with how much car you can afford. This is assuming the two older cars are paid off.

This. $15k car goes towards the 6 month emergency fund. Once that is fully funded you will have another 1200 a month in your budget for retirement/college funds/vacations/toys. You can keep the 5k dollar car or trade it in on another car. I would not use all of the newly freed up 1200 a month budget on a depreciating asset though. Maybe like 5k down and $300 payment...

 

[low03tb]

Depends. Is the interest rate low or not on the car. If sub 1% or even better, 0%, then yeah. If it's higher then I'd put more down as that's blown money you could have saved.

 

[LS2GTO]

I'm making the point that it is a bad investment to plunk down a sizable chunk of change on a vehicle. 5% interest? WTF kind of credit score does that require? My bank is running 2.9 for USED cars right now. You sir are affiliated with the wrong financial institution.

Never once have said that I got myself 5% interest on a car, that was just an example.

And how exactly is it a bad investment to cut down a loan on even a 2.9% interest like you mentioned vs. putting said money away in a savings account earning back 0.1% interest?

Now if you take that money and invest it in a bond or something earning more than 2.9% interest I'll give you that, but me I'd rather pay off my high interest loans (car, mortgage etc.) or putting that money in a 401k fund earning 8% rather than stashing away money in a crappy savings account earning next to nothing.

What you described with your house bills is the exact reason behind having an emergency fund. The OP's fund does seem quite large at $15k, but perhaps he works in a very volatile job market or something of that nature. Most people are pretty comfortable with between 3 and 9 months expenses in liquid cash.

What I took from his OP is that he needs 15k to get to the point of comfort, not that his emergency fund is exactly 15k. So in reality it's probably much bigger.

And that's why I said in my example. Yes I know that in a volatile job market that case is much different. But what people tend to forget is that there are other better ways to have "disposable liquid cash" than straight up savings accounts. That's all I'm trying to say.

 

[Repth]

I hear ya. I keep a hybrid emergency fund. 3 months cash in my bank account and then another ~6 months in an investment portfolio that I can access easily without penalty. The 3 month buffer exists so that I should not have to liquidate my shares which is especially useful if their market value is down. If you are correct in assuming that the OP needs $15k MORE in his emergency fund, then you're right, it's way too big and there's something illogical happening here. Cheers

 

[starnsey]

For example, I know both my wife and I have good careers with year and years of experience in our fields + good education. The likelyhood that both of us will get fired at the same time (and be out of a job for months on end) is very very unlikely, but like you said still there. Plus there is always unemployment to keep us afloat for 6 months..and we can always end up working at Walmart for a few months just to get by while looking for a real job. So for us, we keep enough money in our liquid savings account to take care of house bills for a few months just so we know we have a roof over our head. The rest of the stuff we may need can easily be put on a low/no interest credit card, or worst case scenario we take a loan out on a 401k which comes with no penalties and the interest that we do pay goes right back into our own accounts as apposed to a bank.

This way we have alot of money freed up to go into 401k, which like you mentioned gets matched to a certain degree and also compounds interest. It's a much better place to keep money than a savings account earning you 1/10th of a percentage point. I'd rather dump everything I can now into my 401k to earn interest rather than stash that money away unecessarily into a savings account that gains nothing and then later I can always take out this money penalty free. Yes a 401k loan means you lose interest gains, but those are made up by excessively putting in more money there all these years rather than in savings.

I can understand that. From my perspective, I'd prefer to never touch the money in a 401k until it's time to retire. I understand that some people however don't have a problem pulling from it in an emergency, however in my opinion, I would want to stay away from that.

OP why not open the savings and buy the new car, sell the other 2 and put the money back :shrug:

I think there may be a little confusion. Savings already exists - just $15k away from desired value.

I've made the mistake of buying a car before the one that's supposed to fund it is sold. That puts me in a desperate situation so the urgency to sell it is increased so I'm trying to avoid doing that again.

What you described with your house bills is the exact reason behind having an emergency fund. The OP's fund does seem quite large at $15k, but perhaps he works in a very volatile job market or something of that nature. Most people are pretty comfortable with between 3 and 9 months expenses in liquid cash.

Higher than $15k - that's just what we need to meet our desired value for what we feel is good for six months of coverage.

And yes, we are both in separate but relatively volatile industries. And in some worst case scenarios, my industry could affect hers if shit really hit the fan.

This. $15k car goes towards the 6 month emergency fund. Once that is fully funded you will have another 1200 a month in your budget for retirement/college funds/vacations/toys. You can keep the 5k dollar car or trade it in on another car. I would not use all of the newly freed up 1200 a month budget on a depreciating asset though. Maybe like 5k down and $300 payment...

Nah, no way would we use the full $1200/month. I would not go below $600/month continuing to contribute to the savings on top of 401k contribution.

What I took from his OP is that he needs 15k to get to the point of comfort, not that his emergency fund is exactly 15k. So in reality it's probably much bigger.

And that's why I said in my example. Yes I know that in a volatile job market that case is much different. But what people tend to forget is that there are other better ways to have "disposable liquid cash" than straight up savings accounts. That's all I'm trying to say.

Correct. I have no misguided intention for the savings account to make me money so I don't even consider interest rates for it. Just a cushion for absolute worst case scenario.

 

[LS2GTO]

I keep a hybrid emergency fund. 3 months cash in my bank account and then another ~6 months in an investment portfolio that I can access easily without penalty. The 3 month buffer exists so that I should not have to liquidate my shares which is especially useful if their market value is down.

Exactly, keep 3 months (maybe more if you are in a volatile or seasonal job market) and the rest in something earning you money but still 100% liquidable. And if you have loans out there that are accruing more interest than you are saving with this "rest" fund, then pay those off as quickly as you can. You just have to do your homework on what's available for you.

 

[starnsey]

I hear ya. I keep a hybrid emergency fund. 3 months cash in my bank account and then another ~6 months in an investment portfolio that I can access easily without penalty. The 3 month buffer exists so that I should not have to liquidate my shares which is especially useful if their market value is down. If you are correct in assuming that the OP needs $15k MORE in his emergency fund, then you're right, it's way too big and there's something illogical happening here. Cheers

This is entirely dependent on my situation. If my industry crashes, so does my city as well as my house value. I consider it very logical to keep a (relatively) large emergency fund.

 

[LS2GTO]

This is entirely dependent on my situation. If my industry crashes, so does my city as well as my house value. I consider it very logical to keep a (relatively) large emergency fund.

Understandable, but again...there are better ways to keep emergency fund money than under your mattress or in a savings account.

An emergency fund should be just that, what you need in the next few weeks/months. Anything more should be saved better or invested and if it ever gets to a point that you exhaust your initial emergency fund you can always tap into this one too. Just doesn't make much sense to put EVERYTHING in this emergency fund gaining you nothing. Diversifying is key but it also doesn't mean that you're locked out of your funds...they can be earning you money yet still being 100% liquidable on the spot.

 

[starnsey]

Understandable, but again...there are better ways to keep emergency fund money than under your mattress or in a savings account.

An emergency fund should be just that, what you need in the next few weeks/months. Anything more should be saved better or invested and if it ever gets to a point that you exhaust your initial emergency fund you can always tap into this one too. Just doesn't make much sense to put EVERYTHING in this emergency fund gaining you nothing. Diversifying is key but it also doesn't mean that you're locked out of your funds...they can be earning you money yet still being 100% liquidable on the spot.

Well yes, they will be diversified. They are just not super diversified right now. But everyone is going to have a different opinion of what's best for their situation and life style so really it's impossible to say what is the most correct way of going about it. As long as long-term and short-term goals and necessities are being met, you're doing better than most.

Anyway, I got the more logical answers I needed for the scenario and I feel much better about the decision I plan to make. Just a matter of getting things to work out.

So thanks for the responses and good ideas!