Editor’s Note: As part of a special project on The PerkStreet Blog, we’re offering free question and answer columns on Saturdays with Customer Columnists Clint and Katy Davis of Davis Coaching. If you have a question you’d like to submit to get advice from these financial coaches, email it to firstname.lastname@example.org.
Question 1: Should I Build an Emergency Fund Before Debt Payoff?
Dear Clint and Katy,
I know you recommend becoming debt free before saving a full 3-6 month emergency fund. However, I’m wondering if I should save up 3-6 months of expenses before I begin the debt snowball. I am self-employed and work on a contract basis. My latest job will be ending in a couple of months and I will have to find another contract. What do you think I should do?
- Wade, NJ
Essentially, you’re going to be “un-employed” very soon. Fortunately, you know it’s coming and you can prepare yourself.
For now, I recommend paying only the minimum payments on your debt and focus on saving a full 3-6 months of your living expenses before working your debt snowball. But you need to go into overdrive and save money for your emergency fund as fast as possible. Sell stuff, tighten your budget, and put every spare dime into your emergency savings. Do everything you possibly can to install that safety net before your current contract ends.
You also need to be working your butt off to line up your next contract. Contact people in your network, get in touch with previous customers – whatever it takes to make sure your name is at the top of everyone’s list when an opportunity arises.
Once you land a new job, because you work on a contract basis and your income is somewhat unstable, leave your 3-6 month emergency fund in place. Then you can begin to work the debt snowball and get debt free! Keep looking ahead and taking action – you’ll be just fine!
Question 2: Can We Stop Debt Payments to Buy a Car?
Dear Clint and Katy,
We’re working hard and are scheduled to be debt free (other than our home mortgage) in about a year. Our problem is that our car is very old and is falling apart. Do you think we’ll be OK if we pause our debt snowball for a month or two, and save that money for a “new” car – used, and inexpensive – that’s in a little better shape?
- Shirley, WA
Congratulations on the great progress you’re making toward becoming debt free. Since you’re on the home-stretch, I would try to hang on to the car a little longer. But if it’s really falling apart and is more a matter of safety, your plan might be a good one. You need to be real with yourself though, and make sure you’re not just itching for a newer set of wheels.
When we were on our journey out of debt, Clint drove a 10-year old Jeep with over 300,000 miles of experience. It was in rough shape. In fact, it caught fire twice, he replaced the starter twice, he replaced the alternator, had to re-wire the A/C – you get the point. Sometimes the sacrifice is worth goal.
You guys have done an amazing job of paying down your debt. If you take a couple of months off to save for a better car, you’ll still be debt free at about the same time. A couple of extra months isn’t going to de-rail your plan or your progress.
Isn’t it an incredible feeling to actually sit down, think through your options and make a plan rather than just wandering around and acting on impulse? You guys are level-headed, you’ve done a good job of thinking through this situation and you’ve come up with a very reasonable plan! Thank you for the question, and good luck!
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Clint and Katy Davis are PerkStreet Customer Columnists and founders of Davis Coaching. As financial coaches, their passion is helping people become and stay debt free! Their personalized coaching is designed to help you get your financial life where you want it to be. Like personal trainers for your finances, they can help you develop a specific plan to achieve your goals, and provide the expertise and accountability to get you there. If you’re ready to take control of your financial life, visit Davis Coaching online, check out the Davis Coaching blog, and connect with Clint and Katy on Twitter and Facebook.