Dear Penny: Should We Use Our Emergency Savings to Pay for a New Roof?

This illustration shows two people putting a roof over a stack of money.
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Dear Penny,

I am a financial unicorn. My only debts are my mortgage and my car loan, which will be paid off next year. I use my credit cards basically for convenience and rewards points but pay off the balance in full each month. I maximize my 401(k) through my employer. I have over $20,000 in savings for emergencies. My credit score is a beautiful 836.

But here's the problem: What constitutes an emergency? 

In a couple of years, we are going to 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, although we have only been here for four months. 

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

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

We would appreciate you being the tiebreaker on this. Savings vs. loan? I should mention my husband is also a unicorn with $10,000 of savings. He maxes out his 401(k) and has no car payment. 

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

-Financial Unicorn

Dear Unicorn,

It isn’t often that I get to mediate when two unicorns disagree. So here goes.

I’m with you about when you should spend emergency savings. Ideally, you only use your rainy-day fund for expenses that are necessary, unexpected and urgent. Yes, it’s necessary to replace the roof at some point, but it’s definitely not unexpected or particularly urgent, at least as you describe it. 

Of course, this would be a different situation if, say, the roof was already caving in, or it were in such bad shape that it could put your safety or belongings at risk.

But with the average new roof costing $7,753, according to Home Advisor, you could expect the replacement to eat up about a quarter of your emergency savings — money that’s supposed to be there for something catastrophic, like an illness or a job loss. 

Without knowing your monthly expenses, I can’t say whether that would leave you with sufficient reserves. But keep in mind that financial planners typically recommend that you have enough savings to cover at least three to six months’ worth of expenses for emergencies.

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

In a perfect world — as in, the land inhabited by financial unicorns — you wouldn’t take out a loan or refinance to pay for an expense you know is coming. You’d estimate how much time you have and work a line item into your monthly budget to save up for it. 

So, for example, if you plan to replace your roof in two years, you could each start putting $150 to $200 per month in a separate savings account, known as a sinking fund, designated for a new roof.

But if you need to replace the roof before you can save for it, I vote for leaving your emergency funds intact and financing the cost. 

Because your credit score is, as you put it, a beautiful 836, you could probably qualify for a personal loan at just 5% or 6% interest. You mentioned the option of refinancing, but I’d advise against that. Considering that when you refinance, closing costs typically add up to 2% to 4% of your total mortgage, a loan would likely be a better way to pay for this expense.

A final thought: If you’re truly committed to keeping your finances separate, this could be a situation where you don’t really need a tiebreaker. You could simply agree that you’re each responsible for paying for half of the roof. So if the roof will cost $8,000, you could take out a $4,000 loan, while he withdraws $4,000 from his emergency fund.

But I don’t think this will be necessary. You are both financial unicorns, after all, so I think you can work out a single solution — and maybe use this as an opportunity to have a larger conversation about your philosophies surrounding money.

Ultimately, though, this is a problem where you have plenty of decent options. Better yet, you’re planning plenty in advance for this inevitable expense. That makes you a financial unicorn in Dear Penny’s eyes.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about budgeting to [email protected].