Dealing with Financial Setbacks
I hate financial setbacks. They stink. No matter how well you plan Murphy likes to stick his big fat nose into things. I’m facing my own financial setback at the moment and I’m struggling with it.
About a year and a half ago we paid off my minivan. We continued to make the same payment but instead of making it as a loan payment we opened up a new savings account and automatically send the old car payment over to that account each month. Which let me tell you is MUCH more fun than making a car payment. This extra savings has built up now to the point where we can pay off my husband’s car.
Isn’t that nice?
The plan was to pay off my husband’s car and then continue making both payments to ourselves. The plan being that we would have a nice chunk o’ change when it came time to replace our current cars. Hopefully we could never have another car payment again.
That plan gained importance when we tried to refinance our house back in September. The bank said we needed to pay off my husband’s car in order to qualify for the loan. Refinancing our house will save us about $23,000 in interest over the life of the loan.
So the plan looks good right? We are on track to be free of car loans AND save over $20,000 on our mortgage interest. So where is the setback?
I’ve talked about my husband’s dental needs. We’ve been making progress there and spent about $2,000 last year on dentists. He is continuing treatments this year and we expect to spend at least $3,000 on his teeth again this year. Honestly, it will probably be more than that. The $3,000 is just what we know about so far, and it’s only half way through January.
Apparently my son got my husband’s teeth genes and he is currently scheduled for $500 worth of dental work. Who gets a root canal at age 5? My kid, that’s who.
My daughter sees a pediatric pulmonologist for her asthma and we currently have a $400 bill from them sitting on my counter. Plus she is seeing a new specialist and if I get out of that for less than $1,000 I’ll be dancing.
Oh, and don’t forget I need my house painted.
Those are my financial setbacks. $5,000 in upcoming medical bills and a house that needs painting.
So we have to decide if we really can send that extra money to pay off my husband’s car. Should we hold on to our cash for bills we know are coming? After all, if you know it’s coming then it’s not an emergency.
We sat down the other night and really looked at our options. We ran the numbers and had a good long chat. What should we do? We decided that paying off of the car and refinancing our house was still the best option. It would lower our bare minimum bills by $655 per month (the lower mortgage payment plus losing the car payment) and save us $23,000 in interest over time. The extra cash flow will help us cover those upcoming costs and if something bad were to happen, like my husband losing his job, the lower bills would make our emergency fund last that much longer.
These bills might delay us paying off our house, they might mean we don’t have enough to pay cash for our next car (depending on how much we spend of course!) but looking at the big picture it’s still the best option.
How do you deal with financial setbacks? Do you think we are doing the right thing?
Ashley
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Comments
It seems like the right choice for the long haul. I envy that you can get your house painted for so little. We live in a three story Victorian, we paid well over $5k to get it painted, but it is necessary to maintain a home.
Hi Jeff, thanks for your comment. Yes, we have a fully funded emergency fund. We consider our e-fund to be for job loss only. Or for some other life or death situation. So I don’t intend to use it to pay for things that we COULD put off if we had to.
We actually don’t qualify for anything shorter than a 30 year mortgage. We plan on paying the same payment we are paying right now regardless of what the new payment is, which would put our payoff about 13 years away. We would only pay the min payment in the case of said job loss or other terrible situation. The refi would drop our interest rate almost 2 points.
That’s what I mean when I say set back. If we do this knowing we have those upcoming medical bills I would consider only paying the min payment on the new mortgage for a short time (6 months or so) in order to build our reserves back up and pay for those bills. (holy run on sentence!)
We came to the conclusion that it would be better to do that than to not refinance at all. Scary though!
I also hate financial setbacks! You sound like you are far enough ahead to have some options, at least you aren’t facing this with 2 cars payments, no room to refinance and no savings. I think you are making a good decision!
Sounds like everything that could go wrong did. I think you are doing the right thing. When it rains, it pours.
It’s always interesting when faced with something that tests our personal finance systems.
Hi Ashley,
It’s so frustrating when you get to a point where you have some breathing room, and then all these extra expenses pop up! I think y’all are doing a great job of working together, especially since so many couples have issues when it comes to money. As far as refinancing, rates are so low that it probably makes sense to accomplish that first, and if the worst happened, maybe the doctor and dentist could adjust their bills and let you pay off the balances over time.(interest free of course) Best of luck!
Ashley,
At least your situation is SO much better than most out there without even an emergency fund. Here are my suggestions: 1. You need an emergency fund of at least $1000 or $2000 if you make over $100,000 combined which it sounds like you have. 2. Pay off the car and refinance the house to save you 20,000 in interest. * Make sure you are not refinancing for 30 years especially if you had already paid on the home for 5+ years. What is the change in interest rates would be another question I have? 3. Look in to some supplemental dental insurance plans. Do you have any credit cards? Do you have a savings account for all of those expected expenses or just a car replacement fund. The key is to live WELL below your means so when Murphy comes a knocking you don’t have to answer the door. Hope this helps a little.. Jeff