Can a Car Purchase Fund Double as an Emergency Fund?

Buying a replacement car is one of our goals in the coming months. Specifically, buying a used, vintage 2003 or 2004 red Solara convertible for under $12,000 is our goal.

This is my first mention of it and I haven't added it to this blog's goal list yet because I want to focus on getting rid of our debt first.

I'm prompted to write this post now for two reasons. The first is my budding case of Spring Fever. Here in the Pacific Northwest (some fondly call it the "Pacific NorthWET"), we anxiously await any sign of drizzly, cold winters yielding to the spring. Once spring is here we know our short but glorious summer is right around the corner. Summer = convertibles. Simple.

I had every reason to believe spring was making her way to Washington State when I awoke to this scene in our back yard this morning:


Bleh! OK, so my first reason really isn't that compelling anyway.

Paying Debt vs. Beefing Up the Emergency Fund
My second reason for posting this is a really terrific article I read today on Frugal Dad's blog. If you haven't read his blog yet, I would highly recommend it. He takes a thoughtful, conservative approach to personal finance and money management issues. AND he offers up some great topics. Which brings me back to his aforementioned post, Recession-Proof Your Debt Snowball.

I have been tempted to slow down our debt repayment in favor of beefing up our emergency fund. Currently, it's $1,000. This makes me a little nervous because $1,000 won't go far during a major emergency such as an extended absence from work or, worse, a layoff.

Managing the Risk
On the other hand I have to consider the recession-resistance of our income. We're certainly not unaffected by economic conditions. But we're both in positions that would likely not be cut in the healthy companies that employ us. Additionally, daughter #1 has just received her final college tuition & expenses check from us this week. She graduates at the end of this quarter. This frees up a substantial amount of monthly cash flow in our budget.

So, for me it boils down to a risk management decision. We expect to have our debt smackdown! all wrapped up by mid-summer. At that point our only debt obligations will be first mortgages on our residence and a single-family rental property. The rental property mortgage is covered by rents received. And we could pay that mortgage from our incomes if it came to that. Bottom line? Are we willing to rely on a $1,000 emergency fund for the next four months or so? The answer is "Yes".

Car or Extra Hefty Emergency Fund?
Next on our goal list is to grow our emergency fund to three months' expenses. Easy enough. But after that, our plan is to focus on saving for a replacement car for wife. She's currently driving a 1999 Chrysler Sebring with over 100K miles. Normally, I would consider this car yet "young" with lots of usable life left. But the darn thing is already beginning to nickel & dime us with repairs. From the forum posts I've read, this is not a reliable vehicle when it gets some miles under the hood.

OK, enough justification. Back to the plan. With all the focus we've mustered to pay off debt we will amass $12,000 for the shiny red convertible purchase. But until it's spent, this fund will double as a back-up emergency fund. In essence, until the $12k is spent, we will have saved enough to sustain our expenses for nearly six months. Once the car is purchased we'll be down to our three month emergency fund, poised to immediately get it back up to six months' of expenses.

What Would You Do If You Were in My Shoes?
I am very interested in your take on my plan. Given our situation, do you think this strategy is sound? Is Spring Fever clouding my brain? Please weigh in with your opinion.

Frugal is Cool: The Pendulum Swings

How easy is it to get so wrapped up in the apocalyptical financial headlines that we lose perspective?

Where's the good news in this financial crisis, anyway? I believe the best that will become of this historic time will be the renewed appreciation for thrift, conservation, and delayed gratification.

Our collective national psyche has been rocked to the core. Which is a good thing.

Meghan Busch from Bigger Pockets wrote a piece a few days ago, "Getting Back to Basics", which is well worth the read. Pure gold.

J.D. from Get Rich Slowly posted a piece in recognition of National Thrift Week. His article personifies this pendulum swing by comparing corporate titans' lifestyles: : "Which America? The Possibilities of American Thrift". Also well worth the read.

J.Money of Budgets Are Sexy fame posted a piece today, "Does the Financial Crisis Have a Silver Lining? (Q&A)". By the way, if you haven't subscribed to J. Money's blog yet, check it out. He manages to present thoughtful, poignant PF info in such a fun, irreverent way that he'll have you cracking up as you achieve PF enlightenment. Great blog!

What's your take on this shift? Do you feel it? What have you changed in your life in response? Do you see it as a change for the better?

Photo by Sonneteer.

Financial Goal #2: Foundation Building

I've been thinking about my financial state of mind lately and an old, fuzzy memory bubbled up from when I was about 6-years old.

My parents made my sister and I attend Sunday school. This activity fell under the category of "Do as I say, not as I do".

A rickety old church bus would come by to pick us up. I would go to great lengths to avoid getting into that thing. Once aboard, I knew my Sunday morning would be spent in a tortuous, stuffy room being subjected to a lot of metaphors and parables that my young mind just couldn't grasp.

Sometimes, on Saturday nights, Mom and Dad stayed out a little late partying with their friends (cue Dean Martin music), thus having a tendency to sleep later that normal Sunday mornings. So, often my best strategy was to not make a peep in the house until the yellow monster roared past our house without our young souls aboard. Do you know how difficult it is for a 6-year old boy to lie in bed, motionless, for what seems an eternity? OK, you get the picture.....

When I wasn't able to dodge the bus and was hauled off to that church basement classroom, there were certain activities that were always part of the fare. One in particular was a song we sang about two men building their houses on rock and sand respectively. It was one of those hand gesturing songs. Being a kinesthetic learner, I'm sure all the corresponding hand-gesturing-while-singing burned the experience into my little, cartoon addled memory. Fist on fist represented the wise man building his house on a foundation of rock; wiggly fingers in a downward arc depicted the fool's house being washed away with the sandy foundation. (Guess there were no strict building codes in the Biblical times.)

Some lessons in life need to percolate for a while before their significance comes to bear; sometimes it takes nearly a half century. Of course I get the theological lesson our dear Sunday school teacher was trying to impart. But like many principles in life, this one is coming home to roost financially in 2009.

Wife and I have never been ones to build a large emergency fund. We were always too impatient to go through the process (there's stuff out there to buy you know!) and we'd always figured that if an emergency did arise, we'd tap into one of our generous lines of credit. The folly in that line of thinking, of course, is that we'd be post-emergency with a huge debt hanging over our heads. And perhaps the nature of the emergency would be such that it could have far-reaching effects such as an injury or long job interruption.

This recession has shaken me out of my foolish reverie and forced me to take a hard look at the tenuousness of our financial situation. We look good, and smell good but we're 60 days from potential financial disaster. The lessons are all around us.

So, this year our second financial goal behind debt reduction is to put 3 months of expenses into savings. This is only a start for our emergency fund. (By the way, we currently have $1,000 squirreled away for small emergencies.) After we accomplish Goal #3, to be discussed in a later post, we'll add to our emergency fund and bring it up to the equivalent of 6 months expenses.

Like a rock, Baby!