DEAR DAVE: Is there ever a time you should dip into emergency fund savings in order to pay off your home early?
DEAR ERIC: The only time I would advise this is when your emergency fund is too big, and you have a very small amount left to pay on the house. Keep in mind that your emergency fund should be three to six months of “expenses,” not three to six months of income. Besides, paying off the house doesn't fall into the category of an emergency. The fact that you have to pay for your house doesn't catch anyone by surprise.
I understand it can be very tempting to throw a bunch of money at your house, get rid of the mortgage payments, and own it outright. But I wouldn't drain my emergency fund to make it happen — even if it meant being completely debt-free sooner. Life happens, and the moment you write that big check and weaken your emergency fund, the central unit will go out, the roof will spring a leak, or you'll have major repair issues with a vehicle.
When you do things like that, you're just begging for Murphy to come visit. And that's not my definition of financial peace!
DEAR DAVE: My husband and I have a baby and are trying to live on a budget and pay off about $14,000 in debt. He wants to spend $100 a month for a date night, but I think this is too much under the circumstances. I'm a stay-at-home mom right now, and after taxes he makes about $3,200 a month. What do you think?
DEAR ASHLEY: You win on this one. If you'd told me you guys make $150,000 a year, then I'd say he was being completely reasonable. But with your income and a lot of debt to boot, it sounds like he's just looking for an outlet to spend some money. The good thing is you're working together and beginning to take this personal finance thing seriously. You're just a little bit apart on the particulars in this area.
Back this amount down to $40 or $50 for now. That's plenty for a reasonable dinner and perhaps a baby sitter for a couple of hours. If you have family or friends nearby, you might not have to figure baby-sitting expenses into the equation at all. Keep in mind, too, that going out on a date doesn't have to mean spending money. Years ago, when my wife and I were broke, we did tons of stuff that didn't cost a dime. Picnics in the park or a pretty hike through the woods are great ways to spend time together while keeping the pocketbook in your pocket.
Be creative and make sure you find ways to have “us” time on a regular basis. But you're right on this one, Ashley. You can go out and have plenty of fun together without spending a lot of money.
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