We currently have about $16K cash. I'd like to have $30-35K+ for a ~6 month reserve. This will be a "single giant reserve fund" that will pay for large and/or unplanned expenses, frivolities like vacations, in addition to providing financial security/freedom in the event of hardship like job loss, medical expense, etc.

I know it will take time to get there. But it seems each time I reach some milestone (e.g., $20K, or briefly flirted with $25K) we get hammered with some large, unexpected expense which either saps the reserve fund, or adds to the debt.

Obviously, we should be budgeting for "unplanned expenses", and that's something I'm trying to work on as we've adjusted from two full-time incomes to one full-time + one part-time. The immediate concern is just getting out of the revolving debt, which should free up cash for building up the savings accounts or paying down other debts outstanding.

Examples over the last 12-18 months:

  • $2000 for new hot water heater
  • $2200 for vehicle repairs/maintenance (mea culpa, my Jeep is 14 years old, this should've been budgeted...)
  • $2000 assessment for new parking lot on an "investment property"*
  • $2300 for new washer/dryer **

* The "investment property" wasn't purchased as such. It's my wife's sole & separate from before we were married (I'm neither on title or mortgage). We have had one bad tenant in 11 years of renting it, and have never had to eat more than one mortgage payment between tenants. Rent covers the fixed expenses (mortgage, taxes, insurance, association dues).

** Both W&D were ~15 years old and have been on their last legs. Cheaper replacement options were available, but with considerably shorter expected lifespans (~10 years versus 25 years). We consider these more of an investment in the house itself (akin to a new roof, flooring, etc.) than a consumable. Feel free to disagree, but that was the rationale.

Total annual income is ~$130,000 but this is split unevenly between my full time salary ($100K), rental income ($10,000/year) and my wife's part-time income. I can provide additional detail re: income, expenses, assets, etc., if needed.

Our debt-utilization is under 25%, credit is generally quite favorable (774 Experian, 792 Transunion).

Current debts:

  • Mortgage: $175K outstanding; 15 @ 2.875%, 12 years remaining.
  • Mortgage ("Investment property"): $52K outstanding, ARM; 30 @ 5%, 15 years remaining
  • Student Loans: $45,000 at 4% ($352 monthly payment)
  • HELOC: $22,000 balance at 3.5%
  • CC1: $3600 balance at 0% through December
  • CC2: $2300 balance due Aug 28 to remain within grace period (this was an unplanned expense: new washer/dryer last week)

I am not asking how to get out from the condo mortgage, student loans, or even the HELOC, but simply for strategy to pay off the immediate obligations & credit cards, beyond which I can more comfortably divide our disposable income among those obligations + savings.

I had been planning to pay off the $3600 card over the next 90 days, but then our washer broke & we ended up with new washer & dryer. This expense will come from our current savings (it was put on a card solely for ease of purchase while we need to transfer $$ from savings to checking).

I'd like to pay off both CC's which amounts to a pretty staggering outlay in the next ~90 days of nearly $10K (we will have property taxes & homeowners insurance due September, totaling ~$4000 -- these were planned for, but the W&D were not!), which would basically cut our reserve/savings fund to barely one month's expenses.

This is a pretty tough pill to swallow, but it seems like the way to go. Like, the debt snowball approach; after zeroing out the CC accounts I should be able to redirect most of my budgeted "credit card bill payment" money ($1000-1500/month) to grow the reserve fund.

But this puts me in a cash position that is, well, way less than I am really comfortable with, and I fear the day that my 2005 Jeep will need to be replaced, or our central air unit breaks ($4500 to replace), or our driveway caves in, etc.

One alternative would be to consolidate the CC debts into the HELOC. I don't particularly like that, but it seems somehow more "manageable" provided we continue to pay it down aggressively (~$1000/month).

I could come up with an extra $500 monthly by temporarily (say, for the next 4-5 months) reducing my 401k contributions to the company match amount. I don't really want to do this, either, but there may be a case for doing so.

I don't feel particularly over-extended (assets > liabilities by a good margin, cash position & net worth increasing steadily, debt is going down).

We made a $52,000 down payment and have a 15-year note that pays down principal at the rate of ~$1000/month. So we have a nominally high mortgage payment (compared to the more popular 30-year note), but also considerably more equity. While this insulates us against downturns in the market, it comes at the expense of cash/liquidity.

I contribute about $750/month to my 401k, and we pay about $300 towards some life insurance policies, etc.

I figure lot of "average" people do not do one or more of these things, but we do all of them, and it's a bit of a double-edged sword: yes, we're saving for retirement, yes, we have well-funded 401k, yes we have strong equity position in real estate, but as a result of these savings/investments, sometimes feel cash-poor.

  • 20
    My first impression is that I'm concerned you are letting the details of the individual debt accounts vs cash distract you from the bigger and more concerning question: on the net (cash minus debt), in what direction are you going over the last 3, 6, 12 months? The fine details of whether you pay off a CC immediately with cash or draw it out over a few months is much less concerning than whether you are sinking or rising over all. No amount of allocating cash to savings or debt would fix a problem with too much expenses against income. Make sure that part isn't broken first.
    – BrianH
    Commented Jul 16, 2019 at 17:48
  • 2
    @BrianH over past 12 months, cash trending up (about $8-9K). total debts are trending down by a slightly larger amount (~$12K)
    – David Z
    Commented Jul 16, 2019 at 18:23
  • 3
    You'd kill a bunch of debt, and reduce your worry. Another thought is that the current real estate bubble might be ready to pop.
    – RonJohn
    Commented Jul 16, 2019 at 20:06
  • 14
    I'd say you may be living a bit above your needs. Did you need a $2300 W/D? wasn't there a more affordable model? Do you need a Jeep? (beside its value, which by its age is not that much now, it's also costing more than a smaller car in insurance, maintenance, gas, ...)
    – njzk2
    Commented Jul 17, 2019 at 5:49
  • 3
    I'm trying to figure out why, if only the washer broke, you had to buy a new dryer too. That probably cost you $1000 right there.
    – mkennedy
    Commented Jul 17, 2019 at 17:06

8 Answers 8


The bottom line is you are flirting with debt, much like I did during my younger years. Many ill-informed people will tell you to continue to march, build wealth by using other people's money. However, they never talk about the downside of doing so and the series of events that can lead to bankruptcy or near so.

For the most part you are not doing bad, you are just ill-informed. Debt increase risk that is seldom talked about and IMHO, you are way too extended. What seems to support this opinion is the tone of your question.

This may sound really radical, but I would sell the rental property. Paying off your debts smallest to largest until the Student Loans and HELOC is gone. Only then would I think about jumping back into the "investment property business" and only do so with cash. That is buy rental properties with cash only.

Selling the rental removes a lot of risk from your life and it would probably make you feel much more comfortable using savings to pay off your credit cards, which needs to be done ASAP.

As far as your jeep goes, you can probably sell it as is, and use the proceeds to get some basic transportation.

All this pain is temporary but will lead to better days in the future. Do you want to be in this same place 10 years from now? A brief amount of research will indicate that is likely to happen unless you do things differently than most Americans do. Most mindlessly follow the advice of "Madison Ave" to their financial detriment.

I was 43 when I engaged in a radical debt elimination strategy, and built more net worth that year than my previous working years combined. My biggest regret is that I did not do so sooner.

So in your shoes, I would:

  • Sell the rental property and use any proceeds to pay off debt.
  • Sell the jeep and buy basic transportation.
  • Get on a monthly written budget.
  • Think about picking up a second job.
  • Use the savings account to pay off the washer and dryer and credit card.

Once your debt is gone, it will be relatively smooth sailing to build a fully funded emergency fund.

  • 9
    I don't know if I agree with the 'Sell the rental property' bit. It is true that they seem to be losing money right now but if it cash flows then I would say keep it. If they are spending more money (and consistently have been for the last few years) on the rental property, then there is no point to keeping it. At the end of the day I view it as a source of income that should appreciate with time.
    – rhavelka
    Commented Jul 16, 2019 at 19:18
  • 8
    Even if it cash flows there is not enough to mitigate the risk.
    – Pete B.
    Commented Jul 16, 2019 at 19:28
  • 13
    Mathematically it would seem like the transaction costs would negate any advantage that selling the property has. You'd be throwing $10k+ out the window for the sole reason of "debt is bad somehow". Why not keep it until/unless something catastrophic happens.
    – xyious
    Commented Jul 16, 2019 at 19:36
  • 23
    @xyious one of the major listed un-budgeted expenses is related to maintaining the "investment" property. There is absolutely zero indication that the investment property is a good investment. There are risks inherent with being a landlord and somehow you're singularly concerned with a transaction cost that you made up.
    – quid
    Commented Jul 17, 2019 at 2:39
  • 14
    All we know is there is a second property being called an investment that still has a loan in the amount of $52,000 and recently an expense for that property dinged this person's emergency fund. "Presumably there's a positive cash flow every month" then this expense wouldn't have come out of the personal emergency fund. This whole scenario is the good reason to at least reevaluate owning that property.
    – quid
    Commented Jul 17, 2019 at 17:11

I think that your intuition about the tough pill is correct, and that you should pay off those two credit cards today. Yes, paying them off will reduce your emergency fund for the moment, and that should make you uncomfortable, and you should use that discomfort to motivate you to build it back up quickly, even if that means that you have to deliver pizzas during the evenings for a few months to bring in some extra income.

Rolling the cards into the HELOC is exchanging an unsecured debt for a secured debt, which is usually a bad idea. Leaving those credit card balances in place represents you choosing the known risk of being beholden to those companies over the more amorphous risk of an uncertain future. Once you're outside of the grace period for those credit cards, you're effectively paying the credit card company interest in order to use your own money, so letting those debts linger doesn't make sense. If you really wanted to, you could hold out until the end of the 0% interest period for both cards, but that seems unnecessary; it's much cleaner to have those paid off so that if something happens that exceeds your cash reserves, you can fall back on those cards and have the full grace period available.

Stepping back from the tactical details for a moment, I think that you need to reassess your spending strategy and dedicate more time looking forward and planning. Why are so many of these expenses unexpected? Yes, life happens, and you may not be able to forecast exactly which shoe is going to drop in any given month, but budgeting a certain amount for something to go wrong every month seems prudent, especially given your track record. Regarding spending strategy, why did the new washer/dryer end up on your credit card instead of coming directly out of your emergency fund?

Once you've paid off those credit cards and are allocating money to your emergency fund, the next biggest threat to your financial future is that ARM: that is a financial time bomb that is going to increase your payments substantially. You need to either refinance that into a fixed-rate mortgage or to focus on paying it off well before the rate resets to something higher. I like the idea of having an investment property that's bringing in money, but note that having it also increases your risk surface area, and it's worth thinking long and hard about selling it, using the equity from the property to pay off (in order), your HELOC, your student loans, and potentially your mortgage.

Pausing your 401(k) contributions short-term while you put out some of the financial fires that you have smoldering around you is justified. Suspending retirement contributions should make you uncomfortable. As above, that discomfort is there to motivate you to fix a problem, and I think that it's worth leaning in to that and using it to compel you to make some of these difficult changes. Right now you have a lot going on, and you seem uncomfortable with it. Don't let yourself normalize to this situation. Lean in to the discomfort. Once you've tackled those outstanding debts and have your emergency fund in place, you can focus on building wealth. Until then, you're going to stay feeling stuck living paycheck-to-paycheck.

One final note: you mention that your credit utilization is less than 25%, and you seem to see that as a good thing. Think of it like this: you currently owe a little under 25% of your annual income to other people, so all of your paychecks January through March currently go toward making other people wealthy and can't be used to build your own wealth. The sooner you get rid of those debts, the sooner you get to use more of your income to build your own wealth.

  • 1
    Regarding spending strategy, why did the new washer/dryer end up on your credit card instead of coming directly out of your emergency fund? The emergency fund is a savings account which I don't have instant access to. So I nominally paid for the W&D with the intention of paying that balance in full, once I transfer funds to do so.
    – David Z
    Commented Jul 16, 2019 at 19:43
  • 1
    credit utilization is less than 25% -- no, this means that we are only using 25% of our available credit. This is a "good" thing as far as credit rating is concerned. Of course, I'd prefer it to be even lower, but anything above 33% will have a negative impact. So, we're on the right side of that line, and trying to improve further :)
    – David Z
    Commented Jul 16, 2019 at 19:44
  • FWIW, the ARM has a lifetime cap of like, 8.5%. Adjusts every July, and can't increase more than 2% in any year. Given the relatively low dollar amount of that loan balance, even if we hit the rate cap, it'd be a drop in the bucket. I know every dollar adds up, but that loan is among the least of my concerns :)
    – David Z
    Commented Jul 16, 2019 at 19:47
  • 2
    Trivial, I know, but don't deliver pizzas in a Jeep! Food delivery is one of those things where people end up accidentally losing money, because vehicle costs end up coming out higher than the wages. Commented Jul 17, 2019 at 17:09
  • If you don't sell you investment property, at least get a decent fixed rate loan. You can have close to 2.5% now and it can only improve. Also, paying $2300 for a machine that you can buy another for $600 is dumb. Even if the $600 fails in, let's say, 8 years, you'll still gain swapping it for a new one ~4 times before you'd loose money. Even then, the new model will be more energy efficient and you'll save on electricity bill anyway.
    – xryl669
    Commented Jul 18, 2019 at 11:38

We currently have about $16K cash.

This isn't the worst problem to have!!

I'd like to have $30-35K+ for a ~6 month reserve. I know it will take time to get there. But every time I reach some milestone (e.g., $20K, or briefly flirted with $25K) we get hammered with some large, unexpected expense

Wait until you get divorced. Then you'll beg for the problems you currently have.

which either saps the reserve fund, or adds to the debt.

But that's what your Reserve Savings Fund is for.

$2000 for new hot water heater

$2200 for vehicle repairs/maintenance (mea culpa, my Jeep is 14 years old, this should've been budgeted...)

$2000 assessment for new parking lot on an investment property

$2300 for new washer/dryer

There are two schools of thought on this matter:

  1. A Single, Giant Reserve Savings Fund (aka Emergency Fund) which all this stuff is paid from, and
  2. Every Dollar Has A Purpose (where you create a Home Repair Fund, Vehicle Fund, Medical Fund, Property Tax, Auto Insurance, Homeowners Insurance, etc, in addition to the Reserve Savings Fund (which would be smaller than the $30-35K you're currently shooting for). The sum of the funds would be the same as the SGRF.

I tend to prefer the EDHAP approach, and track it all in a multi-column spreadsheet: columns for funds, and rows for dates, while all the money goes in a single savings account. The beauty, IMO, of doing it this way is that you can "steal" money from one fund to another by just a few clicks in Excel. This also boils down to a spreadsheet sitting on top of the SGRF...

I'd like to pay off both CC's which amounts to a pretty staggering outlay in the next ~45 days of nearly $10K (we will have property taxes & homeowners insurance due September, totaling ~$4000),

The critical bits are CC2, tax and insurance. The CC1 can can be kicked down the road a bit.

I could come up with an extra $500-600 monthly by temporarily (say, for the next 4-5 months) suspending my 401k contributions.

Is there a company match? Because reducing contributions below that limit is a voluntary pay cut, and that's obviously bad. Reducing it to the company match limit is feasible, though.

  • No cable TV or pay channels here. We have Hulu + ($7.99 annually on a promo) and use my brother's Netflix. Combined internet + cell phone bill is about $105 monthly. No gaming (mobile or otherwise). Most of our grocery shopping is done at Meijer (large midwest retail grocer chain).
    – David Z
    Commented Jul 16, 2019 at 18:04
  • 1
    @DavidZemens so much for that idea... :)
    – RonJohn
    Commented Jul 16, 2019 at 18:06
  • Good point about reducing to the company match threshhold, though. I suppose that's what I meant, but didn't specify. Wife & I both work from home, we rarely dine out and what modest "budget" I allow for that is basically a rounding error (e.g., $25/month for "fast food"). We (with the kids) may dine out once or twice a month other than that. (I'm a pretty good cook & prepare most meals at home).
    – David Z
    Commented Jul 16, 2019 at 18:06
  • I don't understand the thing that you call the beauty of EDHAP over SGRF. What exactly is the point if "cheating" is as easy as a few clicks? Care to elaborate?
    – Ghanima
    Commented Jul 18, 2019 at 7:33
  • 1
    @Ghanima also, EDHAP makes you think about all your non-monthly expenses, and budget for them every month: tire need replacing. roofs need replacing, the oil needs changing, appliances break, etc, etc. Once you start thinking like that, emergencies start to disappear because you've already planned for it.
    – RonJohn
    Commented Jul 18, 2019 at 13:25

You didn't mention what your actual monthly budget looks like, but I presume from your reserve fund description that after living expenses and debt servicing, that you have some amount left over every month that you are putting into this reserve fund. We have plenty of questions and answers on shifting all of your extra savings temporarily towards aggressively tackling debts and Pete B's answer has some good tips on that.

I would say that a 3 month emergency fund is actually pretty good compared to many people. You may want to consider starting instead what Michelle Singletary of the Washington Post calls a "Life Happens" fund. Her idea is that an emergency fund should cover 3-6 months for living expenses related to job loss, while the smaller life happens fund covers your hot water heater/car trouble issues (she often says it should be around $1000 or so but you seem to need a higher amount). Once you have a reasonable life happens fund in place, direct all extra cash when possible towards paying off debts.

It also sounds like you should be better prepared for things like property taxes. You know you have them, you should already be budgeting a set amount to set aside to pay them instead of taking it out of the reserve fund. This also applies to cars and home appliances. Depending on age, you should always be thinking about upcoming likely maintenance costs (i.e. tires every few years, hot water heaters every decade or so) and considering getting that life happens fund ready for it.


I see a lot of anxiety in your post. So I think a good first step would be to take a step back and breathe, and take an honest assessment of your situation. Consider the odds of you actually losing your job or other catastrophic or major thing in the near future, for which you would need more than the typically-recommended three month buffer. Work with a third party if you need to and do an honest risk and goal assessment.

Case in point, your comment:

3 mos is a great guideline and starting point. If you can get there, you're ahead of many people. But 6 or even 12+ months of living expenses gives you an extraordinary amount of freedom to pursue things that others cannot. Maybe you want to relocate before seeking a new job? Maybe you want to buy a new home without the stress of having to concurrently sell your current home. Take a sabbatical. Go back to school. Take the family to Europe for the summer. These things simply can't be done on 3 months savings.

Are you actually intending to do any of these things in the near future?

If not, those concerns are moot and your first priority should be paying off your debts. (Even if they are, your first priority should probably still be paying off the debts at least as much as you can, so you reduce your expense load.)

Don't worry, giving up your ideal buffer is temporary, and you can build it to six months if you want, once you stop paying for that savings.

This will be a "single giant reserve fund" that will pay for large and/or unplanned expenses, frivolities like vacations, in addition to providing financial security/freedom in the event of hardship like job loss, medical expense, etc.

That statement directly contradicts this:

The emergency fund is a savings account which I don't have instant access to.

Right now, your "emergency fund" isn't really an emergency fund at all, then.

Set yourself up a savings account with a decent interest rate that you can access quickly. Consider changing banks if your current one doesn't have a good savings account interest rate. Keep a few thousand dollars in that account for an actual emergency fund, enough to cover expenses for however long until the amount from your bigger fund can be transferred. Otherwise, you're going to find yourself having to put stuff on credit again.

Current debts:

Mortgage: $175K outstanding; 15 @ 2.875%, 12 years remaining.
Mortgage ("Investment property"): $52K outstanding, ARM; 30 @ 5%, 15 years remaining
Student Loans: $45,000 at 4% ($352 monthly payment)
HELOC: $22,000 balance at 3.5%
CC1: $3600 balance at 0% through December
CC2: $2300 balance due Aug 28 to remain within grace period (this was an unplanned expense: new washer/dryer last week)

I'd like to pay off both CC's which amounts to a pretty staggering outlay in the next ~90 days of nearly $10K (we will have property taxes & homeowners insurance due September, totaling ~$4000 -- these were planned for, but the W&D were not!), which would basically cut our reserve/savings fund to barely one month's expenses.

At $130k a year (gross, I'm assuming), you should be bringing home $6-7k a month, which means your expenses are nearly that. That means that your first priority should be to put a little space between how much you're bringing in and how much you're spending. You may have more assets than liabilities, but from what you've given here, your cash flow isn't great, and you've said yourself that you feel cash-poor.

Paying off those bills will positively impact exactly that. It will also lower your expenses, thus reducing the amount you need to save to begin with. Paying them all off now, out of your savings, would reduce your savings to one month's current expenses. But your post-payoff expenses also change. You're cutting your monthly expenses by somewhere around $400, not? The difference might not make it two months' expenses, but it shouldn't be discounted, either.

However, you don't have to pay them all off at once. Now, it is your interest to pay off CC2 immediately and you probably don't have a choice on the insurance/tax stuff, but you can spread out CC1 a bit, which should allow you to pay it from your monthly income and what you had been paying to CC2. You have until December to pay it off. Don't be afraid to leverage that fact if necessary. Or you can split the difference -- pay off the others now, then pay CC2 off in October or November.

Then, over the next couple of months, build back up your savings accounts to the three month buffer. Once that's done, beat down the other bills. If that makes you nervous over the long run, then start with the smallest balance one. Once you pay it off, take half of the monthly minimum payment from it and put that into your savings. That way, you're making progress on the bills and steadily growing your savings (though, with a sufficient balance and a competitive interest rate, your savings will grow on its own, albeit more slowly).

Remember, though, that the longer you keep interest-costing loans, the less your savings is actually worth, because you're spending more in interest than what you're getting from the savings account. Socking money away at the expense of paying those loans off actually costs you money. You're essentially paying to save.

$2200 for vehicle repairs/maintenance (mea culpa, my Jeep is 14 years old, this should've been budgeted...)

There comes a point when a "cheap" car isn't so cheap anymore. You might be at that point and it might be worthwhile for you to consider either a new car or an alternative form of transportation. Tally up the expenses you've spent on that car over the past couple of years and calculate the monthly cost. If it's more than what you'd pay per month for a newer car (or other transportation), then it's time to turn it in. If it's not, then you've got solid justification for sticking with what you have -- just make sure to budget accordingly.

tl;dr - Loans cost more than savings makes. Don't pay to save. Paying them off also reduces the amount you need to save for expenses to begin with.

  • Hi Shauna & thanks for the feedback. It takes 2-3 days to transfer funds from savings to checking, so it is accessible it's just not instantly accessible. Also limited by Reg D (as are all savings accounts in the US) to only 6 withdrawals per month. I am a bit anxious of course -- but getting a handle on this will take care of that :)
    – David Z
    Commented Jul 17, 2019 at 20:53
  • Great answer. One thing though, CC1 you have until December to pay it off. Don't be afraid to leverage that fact if necessary. This is a free buffer--paying it off earlier than necessary is money that you could have spent reducing your interest payments instead. I think here, a just-in-time payment (assuming virtually no-risk) is actually optimal.
    – Mars
    Commented Jul 18, 2019 at 6:35
  • 1
    @Mars you're absolutely right, at least under most circumstances. Generally, when faced with such decisions, I weigh the pros/cons of paying off early versus running out its time. Sometimes, the money from that payment, or the lifting of the mental/emotional burden of that debt is more valuable than the interest saved.
    – Shauna
    Commented Jul 18, 2019 at 20:16
  • @DavidZ I'm aware of the transaction limits, but that's irrelevant to the discussion at hand, since it was only referring to one transaction. That is also where a second account would help your situation, because it effectively doubles your transaction number if you need to pull that much from savings that many times. And the point was that if there's any delay in getting your money, it's not equivalent to cash for emergency purposes, because it's not readily available.
    – Shauna
    Commented Jul 18, 2019 at 20:18

Constant emergencies

There is a pattern of behavior exhibited by a fraction of the population. Whenever they come into money, they have an emergency. Which, sure enough, requires money to fix. It's like they just can't catch any luck.

What's actually happening is that they have emergencies all the time. When they don't have money, they find other ways to solve them - they simply apply their minds to it, and get it done. And the problem is in their rear-view mirror, and they never think about it again.

But when they do have money, they are unable to access that thrifty problem-solving mindset -- their minds go straight to "throw money at the problem". "...since I have it to throw" isn't something they consciously think... or if it is, they are thinking "Thank God I have this money, because if I didn't, I don't know what I'd do."

Needless to say, this is a problem. It creates a cycle of self-impoverishing,

I don't know if that applies to you. But you said something which sounds like it fits.

I know it will take time to get there. But it seems each time I reach some milestone (e.g., $20K, or briefly flirted with $25K) we get hammered with some large, unexpected expense which either saps the reserve fund, or adds to the debt.

So give it some thought.

As an example, take the washer/dryer. The "I don't have money" solution is either look closer at the problem and maybe fix it; maybe DIY self-repair; or get a used unit off Craigslist.

Preparing for emergencies is actually pretty urgent

I listened to a lot of financial-advice programs from 2006-2010, and they all talked about a 3 month emergency fund, except for Suze Orman, who talked about 6. Then the 2008 recession hit, and they talked about 6 month (Suze went up to 8-12). So since it's not a recession right now, I recommend a 3-month *yeah right, you gonna fall for that one!?

The fact is, in the boom-and-bust cycle, we are in one of the longest booms in history. Even an optimist has to go "wait a minute".

Now a lot of people say "Oh, I'll just use credit lines as an emergency fund". Nuh-uh. The problem with that plan is that in a general downturn, two things happen at once. You have a fair chance of losing your job. And then, credit tightens up considerably. That means inactive cards start getting closed. Card issuers start paying much closer attention, and either close inactive accounts or drop your credit limit to slightly above your balance. And they know when you're unemployed; your charge patterns change.

As for your HELOC, recessions are often accompanied by a downturn in real estate, and HELOC lenders will snap the the coin purse shut.

So before you even realize it, you can be sitting there with no usable credit.

The other problem with "credit cards as emergency fund" is that you can't pay your mortgage with a credit card, nor obviously, credit card payments. You can do cash advances, but the bank will cap your cash advances if they think you're in trouble. The way you do that normally is to use the card for things you normally pay cash, to free up the mortgage. But those are lifestyle expenses like movies and dinner out: you aren't buying those when you're unemployed.

So all this to say, you need to have your emergency fund in cash or something that is fungible to cash in a down market. (so stocks or speculative investments will also be inappropriate, unless its current value is 2-3 times the emergency fund you need, and you're willing to take a loss on them).

Of course the Grasshoppers here (particularly the young who didn't have to support a family through 2008 as they lost their job) will pooh-pooh the importance of a big cash emergency fund... but your Ant Harper will suggest you listen to Suze Orman. Like she says, even if nothing happens, the peace of mind is priceless, and helps you feel affluent. .

And as said, the emergency fund is for life-breaking emergencies, like enduring a year long unemployment -- not managing ordinary quarterly "emergencies" like car repairs. You should have funds back for that.

The key to emergency funds is burn rate

An emergency fund is based on your financial "burn rate" - the amount of money you must spend every month. There is a difference between "must" and "would like to", so a bunch of things like movies, eating out etc. go away. Certainly your mortgage and debt payments are a part of this.

I am a bit concerned becuase you are making really good money. You should be able to handle this debt easily. The fact that you're having to make choices suggests to me that you have a fairly high burn rate. Getting that down now will help you save.


I'll give you a much simpler strategy without any preaching about debt. All told you have about $300k in debt. Mortgage/HELOC debt is your least expensive long-term, and it's the majority of your debt with $249k. Put that at the bottom of your priority list and focus in the following order:

  1. Pay off CC2 on the due date from your savings. It lowers the buffer, but it's the best use of that money.
  2. Pay off CC1 at $720/month to avoid paying interest on that balance. If a 0% card is not paid in full by the end of the promotional period, you often pay back interest on the entire balance. Don't do that. If you can't manage to find the full $720 in your monthly budget (by first paying the minimum on the other debts) then pay as much as you can and take the rest from savings.
  3. Pay off the student loans. These loans can't easily be dismissed in bankruptcy, and they are the most expensive on your list (after the two credit cards if you don't pay while they're free.) Pay this loan as aggressively as possible. You mentioned $1000/month on the HELOC, I would recommend using it here.
  4. The cashflow on the investment property is positive, but this still looks like your biggest risk to your savings account. If you lose your renters or have any other major problems, it will stretch your budget. It's also your best bet for refinancing and reducing the interest rate after the federal reserve announces a rate cut here shortly (stick to a 15 year loan, don't delay the final payoff). You may also still consider selling it since it can reduce the overall risk with your emergency fund, but that's up to you.

It may feel overwhelming to stare down 4 years of repayments on your student loans, and there is a missing piece of information in your post. How much are you paying total per month toward all your debts? It looks like you should be paying somewhere around $3000/month toward your debts and hopefully $500/month back into savings.

How close can you get to those numbers, and can you sustain them for 4 years until the student loan is gone? If so, your total debt is down to $158k ($108k house, $37k rental, $13k HELOC) after only 4 years of a tighter belt. At that point you have 8 years left on the house, you can finish the HELOC off in another year, and the rental can be paid of 3 years after that (assuming you tackle the HELOC at $1000/month and then put all of that to pay down the rental). You could finish off your primary mortgage in two more years and be completely debt free in 10 years. Also consider splitting any raises evenly between paying down the debt and building up savings.

  • Hi Nathan & thanks for the response. Your figures are just about spot-on, across the board. I like the idea of trying to aggressively tackle the student loans, and I do plan on accelerating that paydown (although perhaps not quite so aggressively) in the (hopefully) near future.
    – David Z
    Commented Jul 18, 2019 at 2:10
  • Why are student loans higher priority than the rental mortgage? The rate is higher and variable for the rental mortgage
    – Mars
    Commented Jul 18, 2019 at 6:24
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    @Mars, I guess I missed clarifying that there's a tax deduction on a rental property for mortgage interest expense. Assuming based on $130,000 and typical deductions that they are hitting the 22% bracket which makes a nominal 5% rate a 3.9% rate in practice. I did note that this is a good candidate for refinancing in the near future which could further reduce that. Commented Jul 18, 2019 at 16:29
  • @Mars Also, student loans are a different type of debt. Assuming the mortgage is non-recourse, if you walk away from it, that's that. However student loans will follow you to the grave. I'm oversimplifying it, but my point is, the nature of the debt is often a more important factor than the interest rate. Commented Jul 18, 2019 at 17:29
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    @Harper hard to imagine a situation where it's worth walking away on house bringing in 10k a year in rent when the remaining debt is only 52k, so i think in this case the only where that would come up IS bankruptcy. That, or disaster leaving the home+land worth less than the debt (but I'm guessing the property is insured...)
    – Mars
    Commented Jul 19, 2019 at 4:07

What I can recommend from the perspective of someone who managed to build that buffer.

It takes much longer then expected - always. Don't get discouraged. I swear I should have reached my milestone at least 1 year earlier, but stuff always got in a way. Don't let that get to you - as it did to me.

Having said the above - your expenses seem pretty high, and that's probably what's hampering your savings.

For example that 2000$ repairs for 2005 Jeep. When I was saving up, my car cost less then that, and if I got a repair bill for 200$ I'd have sold it for scrap. Get rid of a Jeep, buy a cheap, reliable town car eg. Toyota Yaris or whatever brand it's sold under there. It needs to have cheap insurance, and cheap mainatanance, and burn little fuel.

I understand you're probably buying high quality things, but my washer cost 500$ and it works very well to. You can always replace it for something better in few years.

Now onto debt.

  1. Reduce your emergency fund to 2000$ until you reach point (4)
  2. Make sure to always pay-off credit cards, if you fail to do it even once, convert them into loan, and cancel them!
  3. Pay down HELOC ASAP. It'd be very stupid to loose 200k$ house over 20k$ debt.
  4. Start growing your emergency fund back to desired size by setting up a monthly transfer immidetely after payday.
  5. Pay off high interest mortage if it has no penalty for that - since it has higher percentage then student loans.
  6. Pay off Student loans.
  7. Mortgage on investment property can stay there.

To repeat: ALWAYS pay off credit cards - even at the cost of savings, credit cards are an emergency funds in themselves, but can also lead you straight into debt, if you don't use them properly.

After that pay off everything but Student Loan (low APR), and mortgage on investment property (since it generates income, and has low APR also).

Only then start building emergency fund that's larger then 2k

PPS. By high rate mortgage I meant the 5% one, but I made a mistake and thought it's on a main house, not a rental.

In which case the order might be: Credit Cards -> HELOC -> Mortgage on rental (so you can sell it easier if needed, its' tricky though since it's your wife's property).

Then if SHTF: Use Credit Card first, reopen HELOC second.

Paycheck to savings account definitelly makes sense, I'm a freelancer, and I use "company" account as a buffer for my regular "salary", so I obviously think that's smart.

The only thing is I think your fetishizing big "emergency fund", when you have an obvious debt problem. I'd pay down stuff, before raising savings above reasonable amount.

  • Thanks for the insights Marcin. I'm working on a plan using advice from most/all of these answers. A few points: I am not worried to lose the house over the HELOC. In a SHTF scenario, I'd borrow against life insurance or withdraw from 401K. Neither is ideal, but both preferable to losing the house. My paycheck goes into the savings account first, and then I transfer monthly an amount based on budgeted expenses (I am paid bi-weekly and this helps manage regular bills against an irregular pay schedule). Not sure about point 5 -- we don't have a high-interest mortgage?
    – David Z
    Commented Jul 17, 2019 at 18:48
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    I've updated answer based on a comment. Commented Jul 17, 2019 at 20:35
  • About the PS, if I understand correctly, ROI on employer matching is usually 50-100%, making it one of the highest return investments you will find. The amount lost to debt <<<<<<< free from from matching
    – Mars
    Commented Jul 18, 2019 at 6:07
  • @Mars that's true Commented Jul 18, 2019 at 13:15
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    Possibility? Dude. It happened 11 years ago and the market is in a feel-good run-up just like then. And we've already been in the longest boom cycle in memory... Do you seriously expect that 300 years of boom-bust cycle is just going to stop cycling? And go "hold on, we can't have a recession right now, nobody has their emergency funds ready, hey everybody, get ready we're going to have a recession in April 2021..." that would be impossible, but even if it was done somehow, very few people would prepare... Commented Jul 18, 2019 at 17:36

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