Wednesday, 06 November 2013 14:00

Selling Your Car and Emergency Fund Timing

Written by  Dave Ramsey
Rate this item
(0 votes)

Q. Is it a good idea to sell your car in order to buy one that gets better gas mileage?

 

A. Only if the other car is really cheap, or cheaper than the one you’re selling. I think it’s funny when people run out and upgrade on their $7,000 car to buy a $30,000 Prius to save gas. Think about it. That’s an extra expenditure of $23,000 to save gas. Where are you planning on driving, to the moon?

 

Actually saving money is a much better plan than some of the ideas people dream up in the name of saving money. When it comes to things like this, you need to sit down and do the math. Crunch some hard, cold figures and see what happens. “Well, if we got this kind of gas mileage, instead of what we’re getting now, how much money would we save?” But if you spend $5,000 more to save $50 it will take forever to get back the money you’ve already spent.

 

Getting better gas mileage is a good thing, but I wouldn’t recommend spending any more than the value of the car you’re currently driving to make it happen. Moving down in car but up in mileage is a great plan. If you do that, you’ll really start making headway with your money.

 

This kind of scenario is a simple math thing. The problem is lots of times people’s emotions get caught up in stuff, and next thing you know they think they have a real reason to buy an expensive, new piece of automotive technology. I call that car fever, and it’ll wreck your finances in a hurry!

 

 

Q.How long should it take someone to fully fund their emergency fund?

 

 

A. On average, building an emergency fund takes six months to a year. It takes about 18 to 24 months for most people to pay off all of their debt, except for the house. That’s if they’re gazelle intense, and have no life other than getting control of their finances.

 

Baby Step 1 is saving $1,000, and not paying extra on your debts until you have that money in the bank. Once you’ve got a $1,000 starter emergency fund, then your list all of your debts except the house from smallest to largest and attack them with a vengeance. All you do is work and pay off debt until you clean up the mess. Once that’s done, you move on to the next Baby Step, which is adding to your emergency fund until you have three to six months of expenses set aside. Most people can accomplish that in six months to a year.

 

There are always various factors involved because everyone’s situation is different. But in most cases, if you approach my plan with the kind of intensity I talk about, you can become debt-free except for your house and have a fully-loaded emergency fund is place in just two or three years!

 

 

 

 

Last modified on Wednesday, 06 November 2013 14:04
Go to Top