New Garage - Savings vs. 401k Loan vs. HELOC

[index]

My wife and I moved into a fixer upper 4 years ago and have been financing or renovation through cash flow. We have two projects left, replace the falling down garage and update the upstairs bathroom.

Our last refinance in the middle of it kitchen renovation valued the house for 45k more than the 200k we paid and it should be work 300-320k when we are done. We owe 154k on a 20yr loan.

We can currently save 18k per yr after tax and maxing our 401Ks, IRAs, and HSA. We would really like to finish the garage before winter because the neighbor who was letting us park in their extra space has moved and we have a 5 min walk to find street parking.

The new garage will cost 23k. We have 31k in cash/after tax investment savings at a combined ~4.5% interest. 22k is considered an emergency fund and we are very resistant to tapping it. I have a very secure job and 100k in a 401k which I can borrow from and pay 2.1% interest back to myself; I would borrow the entire 23k from a bond fund allocation paying 2.3% so I won't lose out on gains. Last, we could get a HELOC. Rates seem to be about 4-5% but this is deductible at a 20.5% tax rate (fed/state).

How should I go about financing the new garage?

[spicykissa]

I would use savings, but I am more debt-averse than the average Mustachian. What are your worst-case scenario emergencies? What could happen that would require $22K immediately? Will building the garage cost 23K all at once, or can you cash-flow it somewhat?

[Morning Glory]

I vote use the savings. You can always get the HELOC if an emergency arises.

[index]

I would use savings, but I am more debt-averse than the average Mustachian. What are your worst-case scenario emergencies? What could happen that would require $22K immediately? Will building the garage cost 23K all at once, or can you cash-flow it somewhat?

Worst case scenario emergencies are probably related to some sort of job change requiring a quick move, or something like termite damage/flooding at our primary home or one of our rentals. The 22k emergency fund is split between a 50/50 equity/Bond Index fund and 5yr CD ladder. The garage cost would be a lump sum payment. We are going with Tuff Shed as I can't tough their price for a similar garage.

I guess a more apt question why would you take a HELOC before a 401k loan if the 401k loan was coming from bonds funds anyway.

[tweezers]

We also bought a fixer-upper and just financed a new garage (the last big thing!!) using a combination of savings and interest-free credit cards.  We put all our spending (and my reimbursed work spending) on interest-free cards; making the minimum payments on the cards and paying our contractor with the money we would have used to pay the cards off at the end of each month.  We'll have saved up the money to pay all cards off in full before the interest-free period ends.  Interest-free loan (plus credit card rewards) on $30K?  Yes please!!