Draining E-Fund to finsih off debt?

lifeonthehill · September 2014

Quick background. Currently for us bare bones living is less than $350 a month. No kids. Wouldn't have to pay to replace our appliances. Not even an insurance deductible to cover if anything bad happened. We currently have a 10k e-fund which is 2+ years of expenses for us right now. We have been paying off debt quickly and have gone from 33k to a little less than 6k in 18 months.

We have slowed down on the debt pay off because we are funding my college classes/books in cash. We would have been debt free before Halloween this year but now we are looking at being debt free at the end of March. This isn't a huge problem but part of me is wondering why we don't just get it over with and on Oct. 1st when we will have $1,000 to put towards loans just take half the e-fund $3,750 and use that to completely finish them. Collecting nearly $20 a month in interest on them is kind of pissing me off honestly.

We would be able to save the e-fund back up my the end of March and still pay for my schooling. I am waiting to bring the idea up to H until the weekend. I know he is stressed with the first week of teaching and I want to be as level headed about it as possible.

What would you do in our situation?

ETA: Would need to pull $3,750 on Oct. 1st not $5,000

CuriousKiddosMama · September 2014

Where do you live that your expenses are only $350 a month? Gas, electric, food, mortgage/rent? Is that all included?
Since it wouldn't completely drain your e fund- I would probably do it. 4 k left in there is still 10+ months expenses, but I really don't understand the $350 figure and I will need more info on that to really give you my opinion.

brij2006 · September 2014

I would pay them off and get it over with. Especially since your monthly expenses are so low, and it would still keep a large enough E-fund for your situation.

formerlyGDaisy09 · September 2014

You and H work at a private boarding school, right (no housing expenses and limited food)

If it were me, I would take the cash out and be done with the loans. H and I are working to get to a 6 month e-fund (we need 18K total to be there).

when loans get low we still transfer a little out of savings to just be done with them. H has a loan that he's been paying for 7 years that dropped below $750 last month, we just said enough is enough and paid it off. It'll take a couple months to get that $750 back in savings, but it jumpstarted our snowball and decreased our monthly needs...so subtract a few hundred from that $18K we need in the e-fund.

lifeonthehill · September 2014

vikingsfan711 said:

Where do you live that your expenses are only $350 a month? Gas, electric, food, mortgage/rent? Is that all included? Since it wouldn't completely drain your e fund- I would probably do it. 4 k left in there is still 10+ months expenses, but I really don't understand the $350 figure and I will need more info on that to really give you my opinion.

Private boarding school. Free food, housing and no travel to get to work.
We save $50 a month for food during the summer that we have to pay for and another $50 in the budget is for eating out. $225 basically covers it bare bones but $350 is more comfortable for us.

hoffse · September 2014

I wouldn't take half your e-fund for it. But that's just me. 2 years of expenses based on $350/month is less than $10,000.

I do have a point where I'll just pay something off - maybe $1000 or less. But otherwise I would be inclined to keep doing what you're doing.

hoffse · September 2014

I guess the other reason I wouldn't do it is because that's not the point of an emergency fund. I don't like tapping into them for non-emergency situations. $20/month in interest is really REALLY low. I wouldn't break the spirit of the e-fund to save yourself $120.

strickland8052 · September 2014

I don't know..... $4k is not much of an emergency fund, even with your expenses being so low. What if y'all unexpectedly lost your jobs and had to find a new place to live? In a best case scenario, that $4k would only last you a month or two. However, it would probably go even faster, because you would have to find an apartment (put down security deposit), find transportation, start paying COBRA or some other insurance, etc. etc. I'd say to just wait it out and keep your e-fund where it is.

lifeonthehill · September 2014

hoffse said:

I guess the other reason I wouldn't do it is because that's not the point of an emergency fund. I don't like tapping into them for non-emergency situations. $20/month in interest is really REALLY low. I wouldn't break the spirit of the e-fund to save yourself $120.

I do agree about the spirit of the e-fund which is why we would never pull it below the 1 year mark which we think is really important. Now that I am home and have seen the numbers again we would need to pull $3,750 which would leave us with nearly 18 months.

hoffse · September 2014

Well I don't know that there's a wrong answer here. You should do what you feel is best. I guess my concern is the same as Strickland's... you would be left with around $6,300 which is really closer to 2-3 months of expenses if you guys didn't have the free housing, food, and transportation and suddenly had to start putting down deposits, paying into insurance, etc.

Obviously as long as your jobs stayed the way they are, then you're sitting pretty. But if something happened you would probably find yourself having to spend a LOT more than you are accustomed to, and for that reason I would probably keep at least $10K around - minimum - regardless of expenses.

But debt doesn't bother me as much as it bothers others, and I like the feeling of my "safety net."

hoffse · September 2014

One other thought: in your situation it might be better to judge the e-fund based on what you would have to spend if you lost your job(s). Would you still be able to live on campus, eat the free food, etc if you no longer worked there? Probably not. So you really need to save more than x number of months at your current spending rate, because your spending would skyrocket (by comparison) if you suddenly had to pay rent.

Obviously that's harder to judge because you don't know how much it would cost to live without the perks of your job, but it might be a good exercise to at least estimate.

It might be interesting to start a thread to have the regulars post their budget so you can get a sense of what those costs might be.

lifeonthehill · September 2014

strickland8052 said:

I don't know..... $4k is not much of an emergency fund, even with your expenses being so low. What if y'all unexpectedly lost your jobs and had to find a new place to live? In a best case scenario, that $4k would only last you a month or two. However, it would probably go even faster, because you would have to find an apartment (put down security deposit), find transportation, start paying COBRA or some other insurance, etc. etc. I'd say to just wait it out and keep your e-fund where it is.

Fortunately we are both contracted in until July 1st. We would have our e-fund more than rebuilt by then. As for ins. we will both be on our parents ins. still until next June because we are under 26 and our parents are happy to keep that bill while we are working on getting set up and contribute to retirement.

You do have a point that if we did both lose our jobs here in July we would not be able to live on on $350 a month. But with such high job security we are not overly concerned with it. We do plan to keep a steady 10k e-fund in the long run just in case.

formerlyGDaisy09 · September 2014

hoffse said:

One other thought: in your situation it might be better to judge the e-fund based on what you would have to spend if you lost your job(s). Would you still be able to live on campus, eat the free food, etc if you no longer worked there? Probably not. So you really need to save more than x number of months at your current spending rate, because your spending would skyrocket (by comparison) if you suddenly had to pay rent.

Obviously that's harder to judge because you don't know how much it would cost to live without the perks of your job, but it might be a good exercise to at least estimate.

It might be interesting to start a thread to have the regulars post their budget so you can get a sense of what those costs might be.

along the same lines you could look at what decent 1-2BR apartments go for in your area (assuming you'd stay where you are) and then add what you spend on food in the summer in. that might get you a fairly good estimate.

I know in our area a pretty standard 2BR 1BA apartment goes for $1300-1600/month

H and I usually feel pretty good with $1000-2000 as our true e-fund, though we have a goal of getting our savings up to 6 months expenses, I would never let our savings dip below $2000 for something less than urgent and below $1000 for something that wasn't a true emergency.

We feel pretty safe with this as we have 4 jobs between the two of us and I have a side direct sales business, we feel the risk of us ending up with no income is quite low, and that helps us determine what we feel comfortable with in our e-fund.

I think you've mentioned wanting to be a SAHM eventually (correct me if I'm wrong), in that case, risk wise I think you'd want to stay much closer to 6 months to 1 year in an e-fund because it would take less for your family to end-up without an income.

Like hoffse said, I don't think there is a wrong answer in this case, you and H should talk about it and decide what you're comfortable with.

*edited to add more info

lifeonthehill · September 2014

hoffse said:

One other thought: in your situation it might be better to judge the e-fund based on what you would have to spend if you lost your job(s). Would you still be able to live on campus, eat the free food, etc if you no longer worked there? Probably not. So you really need to save more than x number of months at your current spending rate, because your spending would skyrocket (by comparison) if you suddenly had to pay rent.

Obviously that's harder to judge because you don't know how much it would cost to live without the perks of your job, but it might be a good exercise to at least estimate.

It might be interesting to start a thread to have the regulars post their budget so you can get a sense of what those costs might be.

Great idea! I will start one asking budget and how many months of e-fund people keep to compare.

lifeonthehill · September 2014

Gdaisy09 said:

hoffse said:

One other thought: in your situation it might be better to judge the e-fund based on what you would have to spend if you lost your job(s). Would you still be able to live on campus, eat the free food, etc if you no longer worked there? Probably not. So you really need to save more than x number of months at your current spending rate, because your spending would skyrocket (by comparison) if you suddenly had to pay rent.

Obviously that's harder to judge because you don't know how much it would cost to live without the perks of your job, but it might be a good exercise to at least estimate.

It might be interesting to start a thread to have the regulars post their budget so you can get a sense of what those costs might be.

along the same lines you could look at what decent 1-2BR apartments go for in your area (assuming you'd stay where you are) and then add what you spend on food in the summer in. that might get you a fairly good estimate.

I know in our area a pretty standard 2BR 1BA apartment goes for $1300-1600/month

We would go back to my hometown because I could easily get work their while H figured out what we would do next. They place we lived before here was $650 not including the electric bill. Others usually didn't hit over $750. I think $800 for rent/electric would be a good estimate.

Xstatic3333 · September 2014

I would almost always answer no to this question, but-in your EXTREMELY unique situation where the e-fund would be rebuilt during your current employment contracts-I'd say go for it if you're both on the same page. I think you've mentioned in the past though that your H likes the security of an e-fund. I definitely wouldn't push him on it if I'm remembering that correctly.

I do agree with PPs that going forward you might want to base your e-fund on what your expenses would be without the free housing.

lifeonthehill · September 2014

Xstatic3333 said:

I would almost always answer no to this question, but-in your EXTREMELY unique situation where the e-fund would be rebuilt during your current employment contracts-I'd say go for it if you're both on the same page. I think you've mentioned in the past though that your H likes the security of an e-fund. I definitely wouldn't push him on it if I'm remembering that correctly. I do agree with PPs that going forward you might want to base your e-fund on what your expenses would be without the free housing.

That is why I figured I would talk it out here so I can make sure I can state my case effectively and leave it at that. Final decision is in his hands of course.

I am hoping the 10k we want will be a sufficient e-fund after reconsideration but we will see. Hopefully my newest post will help me see the world with a little more realism.

CuriousKiddosMama · September 2014

Sorry, I remember that now. It's really a hard one. Since you could have your e fund replenished by the time your contracts are up I would be tempted to do it, but at the same time I would probably be panic-y thinking about our e find getting so low that I wouldn't! Not an answer, but fortunately it sounds like you are in a pretty good place to make this decision. Whichever way you go you will
Be debt free soon!

vlagrl29 · September 2014

I would not take money out of the fund. For me it's more important to leave that cash for cushion.

lifeonthehill · September 2014

Gdaisy09 said:

hoffse said:

One other thought: in your situation it might be better to judge the e-fund based on what you would have to spend if you lost your job(s). Would you still be able to live on campus, eat the free food, etc if you no longer worked there? Probably not. So you really need to save more than x number of months at your current spending rate, because your spending would skyrocket (by comparison) if you suddenly had to pay rent.

Obviously that's harder to judge because you don't know how much it would cost to live without the perks of your job, but it might be a good exercise to at least estimate.

It might be interesting to start a thread to have the regulars post their budget so you can get a sense of what those costs might be.

along the same lines you could look at what decent 1-2BR apartments go for in your area (assuming you'd stay where you are) and then add what you spend on food in the summer in. that might get you a fairly good estimate.

I know in our area a pretty standard 2BR 1BA apartment goes for $1300-1600/month

H and I usually feel pretty good with $1000-2000 as our true e-fund, though we have a goal of getting our savings up to 6 months expenses, I would never let our savings dip below $2000 for something less than urgent and below $1000 for something that wasn't a true emergency.
We feel pretty safe with this as we have 4 jobs between the two of us and I have a side direct sales business, we feel the risk of us ending up with no income is quite low, and that helps us determine what we feel comfortable with in our e-fund.

I think you've mentioned wanting to be a SAHM eventually (correct me if I'm wrong), in that case, risk wise I think you'd want to stay much closer to 6 months to 1 year in an e-fund because it would take less for your family to end-up without an income.

Like hoffse said, I don't think there is a wrong answer in this case, you and H should talk about it and decide what you're comfortable with.

*edited to add more info

We wont be TTC for nearly two more years. We will be adding another 5k to the efund when we find out we are pregnant making our efund 15k. We will have the money for our ins. deductible and 5k in start up costs saved prior to TTC.
I strongly feel we would need 15k saved away if we had/were having a child and fully intend to do so.

lifeonthehill · September 2014

AprilH81 said:

How about a compromise? Pull enough out that you can pay down half the remaining debt. Then you haven't drained your e-fund but your payoff date will be closer.

This would be a great compromise! I will offer this up if H shoots down paying them all off.

Crossing my fingers that since it is only going to be $3,750 to get them all paid off he will feel the same as I do.

uncreatedsnow · September 2014

I'm in the same boat as you are with living expenses. My second job is a live-in job where everything is paid for, rent, utilities, food, parking, etc. but it's not as stable as yours(Frat House, not Boarding School). I hoard my money like a squirrel in case anything happens. For example, my "emergency fund is $2,500 instead of the usual $1,000. Then I just save up every penny in a secondary savings account, while paying minimum payments until I can pay off an entire bill, depending on how stable things are at the moment.

If I were you, since it's not going to take ALL of your EFund and because you'll have what's there now replenished by the end of the school year, I would go ahead and do it. Start 2015 off debt free and continue to save.

Draining E-Fund to finsih off debt?

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