In this newsletter, I want to answer a question I get a lot when I talk about one of the ways I get creative with my emergency fund.
We all know we should have one, and many professionals recommend it be kept in cash.
While I do agree with that for the most part, I get a bit creative with mine and tweak it slightly.
Q: [Re: Why your emergency fund should not be just in cash] Id love to know more about this. How do you pay your car payment a few months ahead of time, wouldn't they just take down the principal? This is something I’d be interested in, but would love to know more.
A: Great question! It is likely dependent on the lender, but I've dealt with quite a few and never had an issue. Basically, all I've done is make an extra payment on the loan and it pushes out the due date. Let's say I have a loan payment due 4/1/2021 for $100. If I pay that, the due date becomes 5/1/2021. Then, if I make another payment of $100, the due date changes to 6/1/2021. Some lenders allow me to choose "principal only" or "regular payment". When that is an option, I choose the regular payment and it pushes out the due date. This has worked for every lender I've ever had, but can't guarantee it'll work for every one. Another interesting thing I've come across is that some lenders have a limit on how many months ahead you can pay. I use a lender currently that limits it to three months ahead. I tried to pay four months ahead and they automatically applied the fourth payment as principal only instead of as a regular payment.
All the best,
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I am a little confused. What are the benefits of making additional "regular" payments? If something comes up you already have a couple month buffer? How is that different than storing it in cash and paying it as situations arise? Thanks!