Refinancing my 2013 Toyota Prius

About two years ago I purchased a new 2013 Toyota Prius.  I immediately went down to my local credit union (Travis Credit Union) to refinance the loan, partly because I like to keep my business and money local to Solano County whenever possible, and partly because I wanted a slightly better interest rate than I was given on the initial loan financed at the dealership.

Now that I have had the car two years, I am again considering refinancing the loan, for several reasons:
  • Interest rates have dropped.  The interest rate on my current loan is 5.73%.  But Travis Credit Union is currently advertising refinance rates of 2.99%.  A lower interest rate means less money down the drain.
  • As I mentioned in a previous post, I am trying to prioritize my emergency fund.  Having a smaller car payment on a lower interest rate will free up some monthly funds for my emergency fund.
  • I have used my credit cards far too much the past few months, due to unforeseen expenses and cross-county travel for family obligations.  This is what an emergency fund should be for, so again having a lower car payment will allow me to direct more funds toward reducing/eliminating credit card debt.
Now the proverbial sixty-four thousand dollar question is whether I can refinance the loan right over the phone or whether I will have to truck myself down to Travis Credit Union to initiate the refinance application.

What You Can Learn about Money from Your Lower-Income Friends

There are many articles out there about what you can learn about money and personal finance from the wealthy; the habits of the wealthy, if you like.

However, I would like to focus for a moment on what you can learn about money from your lower-income friends and relatives.  I do not mean your friends who make poor financial decisions, such as buying a car with a $900/month payment without steady employment or having ridiculously high credit card debt.  Instead, I mean your friends who happen have lower income but know their financial limits and still live within their means.

Here are a few examples of things I have observed about my lower-income friends, perhaps lessons all of us can learn:

  • It is okay to have a paid-off older car that runs just fine; a shiny new car is a luxury often beyond reach.
  • A glass of wine or a cup of coffee at home is just as good as, even better than, an expensive outing around town.
  • An affordable pay-as-you-go phone/internet plan is just as good as an expensive mobile/iPhone service contract.
  • Living together with extended family can create financial stability compared to rugged individualism and living in your own house/apartment.
  • A lower-paying job, while creating some financial stress, can free up your mind and your off-hours for quality time with family and friends.
  • There are plenty of ways to get good entertainment besides an expensive Comcast or AT&T cable package: think Netflix, Hulu, and YouTube.

As I think about ways to downsize and to reduce my expenses, oddly enough I look to my lower-income friends as role models for frugality and living within one's means.  Of course, making more money is perhaps the easiest way to create some financial stability.  But making more money shouldn't be an excuse to be wasteful or frivolous with those hard-earned dollars.

Rounding Out Your Financial Picture: Prioritizing an Emergency Fund

One piece of my financial picture that I have been neglecting is an emergency fund.  In these increasingly uncertain times, I have decided to make building an emergency fund a financial priority.  Prioritizing an emergency fund means making some adjustments to my automated financial system, at least for the time being.

My modest emergency fund goal will be to save an amount equal to three months' salary.  Six months' worth might be smarter, but three months' worth is a more modest initial goal, and you have to start somewhere!  Here is my plan:

  • Reduce my 401(k) contributions to 4%, freeing up funds for my emergency fund while ensuring that I still receive the 4% company match.  (Free money is free money!)
  • Make minimum payments on all credit accounts (credit cards, mortgage, and student loans).  While the official financial advice is usually to prioritize high-interest credit accounts, temporarily prioritizing an emergency fund is better for my long-term stability and financial peace of mind.
  • Set up automatic deposits for a portion of my paycheck to go straight into my emergency fund savings account.  Automatic deposits/contributions are the hallmark of any good financial system.  Automating your finances makes your life easier and reduces your chances of deviating from your plan.

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