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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, in addition to providing financial security in the event of hardship like job loss, medical expense, etc.

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

Obviously, we should be budgeting for "unplanned expenses", but our budget feels pretty maxed out already, and until/unless I can get out from under some
of these other debts, that doesn't seem like a viable option in the short-term.

I can provide additional detail re: income, expenses, assets, etc., if needed.

Our debt-utilization is under 25%, and 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


• HELOC: $22,000 balance at 3.5%


• Student Loans: $45,000 at 4% ($352 monthly payment)


• 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)

Note: 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, and have zero obligation towards it). We have had only one bad tenant in 11 years of renting it, and have never had to swallow more than one mortgage payment between tenants.

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 ~60 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. For obvious reasons, I don't want to do this, but even nickel-and-diming other areas of our budget, I'd be hard-pressed to come up with more than a few hundred bucks.

I don't feel particularly over-extended (assets > liabilities by a good margin, cash position & net worth increasing steadily, debt is going down). Sometimes frustrated by liquidity, of my own doing -- I could've taken a 30yr mortgage with 5% down instead of 15 with 20%. I might have cash but no equity (or I might have neither!), and more uncertainty w/r/t the local real estate market. I could contribute less to my 401k. We might not have life insurance, 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 strapped for cash in the moment.

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 to 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 then 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 then 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 CC.

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

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.

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 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.