Posted on 04/16/2013 8:48:10 AM PDT by Altariel
Dear Dave,
Is there ever a time you should dip into emergency fund savings in order to pay off your home early?
Eric
Dear Eric,
The only time I would advise this is when your emergency fund is too big, and you have a very small amount left to pay on the house. Keep in mind that your emergency fund should be three to six months of expenses, not three to six months of income. Besides, paying off the house doesn’t fall into the category of an emergency. The fact that you have to pay for your house doesn’t catch anyone by surprise.
I understand it can be very tempting to throw a bunch of money at your house, get rid of the mortgage payments, and own it outright. But I wouldn’t drain my emergency fund to make it happen—even if it meant being completely debt-free sooner. Life happens, and the moment you write that big check and weaken your emergency fund, the central unit will go out, the roof will spring a leak, or you’ll have major repair issues with a vehicle.
When you do things like that, you’re just begging for Murphy to come visit. And that’s not my definition of financial peace!
—Dave
Dear Dave,
My husband and I have a baby and are trying to live on a budget and pay off about $14,000 in debt. He wants to spend $100 a month for a date night, but I think this is too much under the circumstances. I’m a stay-at-home mom right now, and after taxes he makes about $3,200 a month. What do you think?
Ashley
Dear Ashley,
You win on this one. If you’d told me you guys make $150,000 a year, then I’d say he was being completely reasonable. But with your income and a lot of debt to boot, it sounds like he’s just looking for an outlet to spend some money. The good thing is you’re working together and beginning to take this personal finance thing seriously. You’re just a little bit apart on the particulars in this area.
I think you back this amount down to $40 or $50 for now. That’s plenty for a reasonable dinner and perhaps a baby sitter for a couple of hours. If you have family or friends nearby, you might not have to figure baby-sitting expenses into the equation at all. Keep in mind, too, that going out on a date doesn’t have to mean spending money. Years ago, when my wife and I were broke, we did tons of stuff that didn’t cost a dime. Picnics in the park or a pretty hike through the woods are great ways to spend time together while keeping the pocketbook in your pocket.
Be creative and make sure you find ways to have “us” time on a regular basis. But you’re right on this one, Ashley. You can go out and have plenty of fun together without spending a lot of money!
—Dave
Dave Ramsey ping
lol...what’s a ‘date night’? Oversized sweat pants and fixated for hours with texting?
Add me please. Love hearing about others problems so that I can learn to avoid them.
Unless one invests in privately-held business, one is, at the end of the day, working one’s whole life for new world order.
Borrow from their banks, work, get used to a low standard of living and pay their banks back with interest.
Investments in publicly-traded securities are, in essence, turning one’s capital over to new world order (Wall Street) to manage. And use as they please.
In a roundabout but absolutely real way, an auto loan helps to fund Obama’s election.
Eating at home, one can have a decent meal for somewhere in the $1 to $5 range per serving. But then someone at home would have to be interested in the art of keeping a home.
IMHO, I find a meal at home far more appealing than 99% of the so-called restaurants out there.
A 10-year old once observed the truth: “these people want to eat out because they don’t have to do the dishes”.
Remember to save a bunch of money for retirement you all so Obama can say that if you were able to live on less before, you will be able to live on far less in retirment and take what you have.
Is there ever a time you should dip into emergency fund savings in order to pay off your home early
Pay off the mortgage.
When our home got down to around $30,000 we took some of our emergency funds and paid it off.
We then took the mortgage money and returned it to our savings account.
A few years later when I was let go from my job at 59 it was not a major disaster. With no rent or home payments our living expenses were modest.
I went on SS as soon as eligible. A roof our our head is around $100 (taxes and maintenance). We would not be able to find a cheap apartment for that money.
(Oh, the idea that mortgage interest is tax deductible is not always a win win situation. We looked into it before we paid off the house and discovered standard deductions were just as good).
Ping
Dave can’t possibly answer her question without knowing what her expenses are. $3k a month is a nice tidy income. What’s her living budget and how much are they contributing to taking down the debt? If she doesn’t have an amount set aside in the budget for entertainment/date nights, then they need to re-evaluate things. If they set aside $100 for entertainment that month, then go on the date. If their entertainment allowance is less than $100, then they opt for McDonald’s or stay home and there’s no reason to ask Dave anything.
Dave Ramsey ping.
I’ve been on vacation so you may (or may not) see a few pings today.
I have to admit that I did take money out of my emergency fund to pay off my house, however I made sure that after the payment that I was left with at least 3 months worth of expenses (minus the house payment) left in the account. I figured that without a house payment, then my EF could be reduced and still meet the guidelines of the baby steps.
You’ve been added. Welcome aboard FRiend.
But 3-6 months of living expenses will be much smaller with the house paid off. If you forget to correct for that you’ll wait longer than necessary to make the leap. The other thing though, is that you’re paying so little interest in the last year or so of the loan, there’s hardly any gain in raiding the EF and paying it off earlier. I think the last year of my loan I’m going to pay $200 or something in interest the entire year.
That's exactly right. Once you're even near the threshold where the standard deduction is competitive, why would you do anything other than try to eliminate paying the interest in the first place? Even if your interest IS high enough to deduct, isn't it better to keep a dollar of your own money than it is to get 30 cents back on your taxes, at the cost of extra time and paperwork?
Actually a date night can be a real advantage. It is a chance to have a bit of time without the dishes, diapers and dirt- to share interests that tend to get buried in the process of raising a family. If you think oversized sweat pants and texting is it, oh my.
stuck_in_new_orleans desires to be added to the Dave Ramsey ping list.
lol...I believe in it, for the reasons you’ve stated. The Mrs., not so much.
Never mind, ignore my earlier ping.
A good point, but if you can afford to do it without entirely draining the EF, I'd pay off the mortgage, put the amount I was contributing to the mortgage back into the EF, and pay myself that $200 in interest. I did a similar thing the last time I had a car payment. When I paid the car off in 2000, I just kept putting the car payment into a savings account every month. In 2009, when I got ready to buy another car, I paid cash, and still had a decent amount in the savings account.
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