Hello Mustachians, I am new and looking for a bit of advice.
My wife and I are in the 25% income bracket and have a new baby. I am basically debt-free (except for the mortgage), but my wife has $30k education debt at 6.5%. In 2015, the interest should be entirely deductible, so our effective rate on that is about ~4.5%. In a couple years she will be eligible for loan forgiveness up to $17.5k, unless Congress changes the criteria to qualify for it. Nothing is certain right now.
I max out all the tax-advantaged retirement accounts year-over-year but have had quite a few cash expenses lately related to the newborn and other misc. expenses. My current liquid assets are in savings account and i-Bonds. Besides tax-advantaged savings, I do not currently have a ton of taxable accounts. That is partly why I am here - we want to increase this aspect!
However, we currently own only one car, and my wife needs something reliable to get her on-time to and from the school where she teaches. Being late or absent is a really big deal for a teacher, so reliability is important. I estimate our driving habits to and from work would be 4-5k miles per vehicle. I ride my bike as much as possible, but I cannot muster the courage to do it in heavy rain or temperature below 40F.
A family member has a 2013 Honda Fit coming off lease with a $10.5k residual and only ~20k miles. Compared to the current used market, this seems like a fantastic deal. The downside is that the ~$11k I would pay after tax is basically all my savings account money, leaving only the i-Bonds and a little cash my wife has managed to save.
The other option as I see it is to finance the car at about 2-3% through our credit union (at least partially) and instead roll cash into student loans to pay down that debt.
I would rather not have a car payment, but is this a situation where it may be more prudent to get a loan? Or should I be looking for 4-5k, high-mileage vehicles for her? Reducing retirement savings to increase cash savings is not an option - IMHO you have a certain amount of tax-advantaged money per year, and if you do not take advantage the opportunity is gone forever.
Advice is much appreciated.
