We're in a similar spot to you Beach. ie. Not entirely mustachian, but doing the best we can.
Big things like this can be very emotionally draining. I don't blame you for sounding a little defeated, but what is more important is to consider where you would be if you hadn't been saving. Then what? $14,000 on a 5 year plan? 10 year plan? 15 year plan - many of these plans are timed so that just as you are done paying out the debt, your furnace once again dies and you left feeling defeated all over again.
Since you have cash you have options.
1. Call the local utility (Gas? Electric?) and find out what options they offer. There may be a rental option or a payment plan that will have lower interest than buying outright. Rental plans often carry a maintenance plan on them so next time you can file this under "not my problem". Once you have all the options, fire up excel and work out which has the lowest lifetime cost, and what rental/payment plans look like versus the value of your money sitting in an investment. Now make a choice based on dollars and not emotion. Being able to make this choice is a luxury.
2. Decide whether you even need central heat. WHAT!?!? You crazy mofo! - Not really. Heated houses (even in Canada) are a pretty modern luxury. People were living off woodstoves up to about 40 years ago. I've had 5 houses, and only the current one has has a central heat system. A small house with a good layout can be heated quite nicely with a woodstove and a few cords of wood. Other options I've lived with that worked just fine included:
- Gas Fireplace with blower
- Oil-fired radiant wall units (not recommended - stinky and poor heat, especially in an uninsulated 1930's bungalow)
- Baseboard heaters - likely not an option unless you want to rewire your house
- Woodstove - messy, inconsistent heat, but worked fine. Brought home 2 babies in a house heated exclusively by one little woodstove in the living room. They're both just fine.
3. Take this opportunity to re-evaluate the system you have and see what chances there are to tweak it. Maybe that fancy-pants dual zone system isn't as efficient as it could be. Maybe the upfron expense of fixing it now will repay you in new efficiencies. Maybe you really want to switch from gas to electric, etc. is there another system that you can put in that would be more efficient/less costly to operate. This can mean this is actually a blessing.
4. With a decision made on your best option, research the install like hell and see how much of the work you are comfortable doing. There are many knowledgeable folks here who will help you,but there are also other really good forums to ask for tips and tricks on. You may not be able to do the whole job, but you may be able to reduce costs by doing a portion of the work. Or by being a helper/gopher to your contractor.
Once you've narrowed down all your options, and the house is running again, make a plan to recharge the emergency fund. This must be a family effort unless you want to feel like its always up to you to fix the finances. Momma and I have acknowledged that when the funds crisis hits, I find extra income, and she finds extra savings. Its how we roll. We don't have a ridiculous savings rate, but we have an emergency fund big enough to replace a car, and we have the ability to pump our earnings and savings into emergency mode when needed.
A few years back, we had a small
landscaping project morph into a $25,000 pool rebuild. We were sweating the money going into the back yard, and crying. Just as the landscaper wrapped up laying in a new pool deck and liner, the AC unit on our house died. It was the straw that broke the camel's back. I felt utterly defeated. We got out of the house for a week (went to a family cottage) came back, and kicked our savings plan into high gear. Today I appreciate the yard for all the work that went into it, and I love that we never had to go into debt to do it.