Should we use our emergency savings to pay for a new roof?

Dear Penny,

I am a financial unicorn. My only debts are my mortgage and car loan, which will be paid back next year. I generally use my credit cards for convenience and reward points, but I pay the remaining amount out in full every month. I maximize my 401 (k) through my employer. I have over $ 20,000 in emergency savings. My credit score is a nice 836.

But here’s the problem: what is an emergency?

In a few years we need a new roof. My husband thinks we should use the emergency money. I think we should take out a loan or refinance our house even though we’ve only been here four months.

I don’t want to wait until the roof actually needs to be replaced to make a decision. It could be two or five years or circumstances change (death, nursing home, etc) and the point will be moot.

I don’t think replacing a roof is an emergency so I don’t want to use our emergency money. For me, an emergency is something unexpected like a medical expense or a car repair. We know the roof is old.

We would love if you are the tiebreaker in this matter. Savings vs. Loans? I should mention that my husband is also a unicorn with a $ 10,000 savings. He is exhausting his 401 (k) and has no car payment.

We keep our finances separate, but he has no debt other than the mortgage.

-Financial unicorn

Dear unicorn,

It doesn’t often happen that I can mediate when two unicorns don’t match. So, let’s go.

I am with you when you should spend emergency savings. Ideally, you should only use your rainy day fund for expenses that are necessary, unexpected, and urgent. Yes, it will be necessary to replace the roof at some point, but it is definitely not unexpected or particularly urgent, at least the way you describe it.

This would of course be a different situation if, for example, the roof has already collapsed or is in such poor condition that your safety or belongings could be endangered.

With an average new roof price of $ 7,753, according to Home Advisor, you could expect a replacement to consume about a quarter of your savings – money to be spent on something disastrous like illness or loss of a job.

Without knowing your monthly expenses, I cannot say whether this will give you sufficient reserves. Note, however, that financial planners usually recommend that you have enough savings to cover emergency expenses worth at least three to six months.

So does that mean the tie is officially broken? Well not exactly.

In a perfect world – like the land where financial unicorns live – you wouldn’t take out a loan or refinance to pay the cost that you know is coming. You would estimate how much time you have and include a line item in your monthly budget to save on it.

For example, if you plan to replace your roof in two years’ time, you could put $ 150 to $ 200 a month at a time into a separate savings account called a sinking fund, which is dedicated to a new roof.

But if you need to replace the roof before you can save on it, I vote to keep your emergency supplies intact and pay for the cost.

Since your credit score, as they say, is a nice 836, you could probably qualify for a personal loan with just 5% or 6% interest. You mentioned the refinancing option, but I would advise against it. When you consider that when refinancing, the closing costs are typically 2% to 4% of your total mortgage, a loan is probably a better way to pay that cost.

One final thought: if you really make a commitment to keeping your finances separate, this could be a situation where you really don’t need a tiebreaker. You could simply agree that you are responsible for half of the roof each. So if the roof is $ 8,000, you can get a $ 4,000 loan while he withdraws $ 4,000 from his emergency fund.

But I don’t think that will be necessary. After all, you are both financial unicorns, and I think you can come up with a single solution – and maybe use this as an opportunity to have a bigger conversation about your philosophies around money.

Ultimately, however, this is a problem that leaves you with a lot of decent options. Better yet, plan well in advance for these inevitable costs. That makes you a financial unicorn in Dear Penny’s eyes.

Robin Hartill is the Senior Editor at The Penny Hoarder and the voice behind Dear Penny. Send your budgeting questions to [email protected]

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