Minimal Saving in Baby Step 2

Alex says his car is on its last legs, and he thinks he needs to save for a new one or repairs. Dave isn't so sure this car is really on its last legs.

QUESTION: Alex in Pittsburgh wants to know how to decide what his miscellaneous savings account should be for. Alex says his car is on its last legs, and he thinks he needs to save for a new one or repairs. Dave isn’t so sure this car is really on its last legs.

ANSWER: You’re not saving for anything in Baby Step 2. You wouldn’t be saving for car replacement in Baby Step 2. Repairs are a month-to-month thing. You can keep whatever you need to budget for repairs in an envelope in cash. Write “car repairs” on it. You need to minimize your saving. We don’t try to fill up all these savings categories while we’re trying to get out of debt. We’re trying to get out of debt.

If the car dies, I guess you’re going to be in a $1,000 car because you’ve got a $1,000 emergency fund. If you can see it coming for sure... Most cars, when people say a car is on its last legs, usually that means it’s got two more years of life, and they’re just sick of that piece of garbage. If you can get two more years of life out of it, you can clean this mess up. I think you stretch this car or you keep patching it and just baby it along and let’s make it last enough to get through this. If you’ve got to do a little bit of stuff there, you do a little bit of stuff there to keep it moving. I would try to keep that car rolling. If you are 100% sure and what you’re saying is not an emotional statement but is instead a mechanical fact that the thing literally has two weeks and it’s going to be gone, then you’re going to have to really roll up your sleeves, stop your debt snowball, and get a little replacement car of some kind. If it’s just a junky car and it’s got 300,000 miles on it but it’s still running, drive that thing. That’s how I would approach it.