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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cnn on January 02, 2013, 07:53:55 PM

Title: Hypothetical Situation
Post by: cnn on January 02, 2013, 07:53:55 PM
Hi guys,

I was just wondering how mustachians handle situations like your car blowing up.  Do you completely nuke your emergency fund to buy another modest car or do you pull money from your investments?  My wife and I have an emergency fund of about 10K and are putting all out extra money in to investments.  Our cars are relatively low in mileage (100K and 65K) but I just wanted to see how mustachians would handle this cash flow issue
Title: Re: Hypothetical Situation
Post by: smalllife on January 02, 2013, 08:11:12 PM
I would use the opportunity to try going car-free, or at the very least downgrade to a scooter.  That would not work for every situation though.

As far as cash flow, I would dip into the emergency fund and replenish by decreasing investment until it is full.  I can't see myself going through the hassle of selling investments when there is ready access to cash instead.  If there is another emergency then I would dip into investments - although there are very few things short of job loss that would cause me to tap investments.
Title: Re: Hypothetical Situation
Post by: happy on January 02, 2013, 08:50:58 PM
My emergency fund is  a line of credit at the same rate of interest as my mortgage, which is unused.  If I had an emergency expense that I couldn't cover I would withdraw from the line of credit (up to 20K), and if necessary I can redraw the mortgage online without delay. Because I would have to pay interest on it, this reduces any possibility of dipping into it unnecessarily. If I became seriously sick I have 4 months paid sick leave...enough time to reorganise finances if need be. Psychologically I spend less with a mild amount of pressure on the finances: I'm better off putting anything spare into the mortgage and not leaving too much in the cheque account to use.
Title: Re: Hypothetical Situation
Post by: gooki on January 02, 2013, 11:14:02 PM
I'd borrow a car for a week or two from friends or family, and use about $5,000 of savings on a replacement car.

But if you run such a tight ship that you had to liquidate some assets (stocks), then that'd be all ok, provided you don't over buy (anything more than $10k on a car is well into unneeded luxury).
Title: Re: Hypothetical Situation
Post by: BlueMR2 on January 03, 2013, 06:18:14 AM
I err a little bit on the side of safety and always have access to enough quick cash to cover a sudden $5k.  More than that might take a few days, but if the repairs (or choice to replace instead of repair, which I only very rarely agree with) comes up, you're not likely to actually NEED the money immediately anyways.  Repairs of that magnitude usually take a week or 2 and finding a *good* used car takes 2-4 weeks typically (thanks to a combination of cash4clunkers and the struggling economy that totally decimated the used car market around here).
Title: Re: Hypothetical Situation
Post by: Blackbomber on January 03, 2013, 06:27:46 AM
HELOC is my emergency fund.

Title: Re: Hypothetical Situation
Post by: cnn on January 03, 2013, 06:41:16 AM
Thanks a lot for the replies.  :)
Title: Re: Hypothetical Situation
Post by: starbuck on January 03, 2013, 06:53:30 AM
I don't have a cash emergency fund sitting around any more. My taxable investment account is really only for a job loss/medical emergency (and financial independence...)

We've got two cars that neither of us use for commuting to work. I take the train, and my spouse has a company car. So if one of our cars blew up, we'd just go without for awhile (I'm betting on the old Jeep exploding - just last night the passenger side window decided to throw in the towel an inch away from rolling all the way up.)

If we needed the two cars for commuting (ugh), well then I'd probably have more cash in a car fund (probably $5k?) If needed I'd just liquidate the money we set aside for future traveling, and stop investing/saving for a month or two. Our 70% savings rate means that very little becomes a true emergency.
Title: Re: Hypothetical Situation
Post by: Jack on January 03, 2013, 07:33:15 AM
For me, a $10K emergency fund is enough to buy 2 or 3 cars... but I'm unlikely to need to spend it on any because my wife and I own two cars but only use one, and keep the other as a backup (and also for occasional hauling, as it's a truck).

I haven't done the math to find out if the overhead (taxes and insurance) is higher with two $3,000 - $5,000 cars than with one $10,000 car, but I like the versatility and redundancy.
Title: Re: Hypothetical Situation
Post by: Jamesqf on January 03, 2013, 12:14:00 PM
My emergency fund IS an investment - about $10-20K parked in a low-volatility income fund.  (That's distinct from my "float": the average $5K or so I keep in cash 'cause I'm self-employed and don't get a fixed paycheck every month.)  Where I would get the money for an emergency depends on the state of the market.  If one of my other investments was well up, I would take the money out of that, and hope to replace it later when the market is down.