The other day I wrote a post about grieving my debt. As usual, I got some great feedback from readers but one comments in particular stuck out for me:
Makenzie from The Random Path said “I can see how it would be strange to not have any debt and think “Now what”?”
It’s a great question, and one that I’ve been asking myself every single day. Now that I’m not funneling money towards credit card payments, what do I do next? Being in debt has inhibited a ton of goals and I have a lot of catching up to do. But where do I start?
Here are a few options:
- Retirement. My IRA has an embarrassingly low balance. So low, in fact, I’m not even going to tell you what it is. I have a small balance in my Fidelity account but it’s nothing to brag about. And I do have a pension through my government job but, by the time I retire, who knows what that’s going to look like. I really need to up my retirement savings and putting extra money towards this is at the top of the list. It’s just a matter of which pot of money we’re going to use to do it.
- College. My husband has massive student loan debt (granted, it’s not as massive as some people’s, but it’s large enough) and, after much discussion, we’ve decided that we don’t want our daughter starting out her adult life the way he started out his. In order to do that, we have to start putting a lot more money into her 529 than we currently do. The plan is to move the daycare payments (which end in June) to her college savings but there’s a situation that might be preventing that (stay tuned because next week, I’ll be
ventingdiscussing that). If the situation resolves itself, we’ll be sending a minimum of $350 to her 529 every month. - New car. Eventually our cars will stop running and we will need to replace them. We don’t live in an area with spectacular public transportation and we’re planning on moving to an area that has absolutely none. So, we’re going to need our cars. Yes, cars, because my husband’s job will be over an hour away from our new house and I’m going to need to get around; sharing one car is out of the question. We’re lucky in that we have later model cars that are really reliable but you can only push a car so far. I despise having car payments so saving for new cars is critical.
- Down payment. We currently own our house (well, technically the bank owns it since we pay a mortgage but you know what I mean) and are planning on selling it very, very soon. However, because all of the other homes for sale in our neighborhood are actually bank-owned, our comps are terrible (yes, we were relying on money from the sale of our house to help increase our down payment). This means we won’t have enough money, even with what we have in savings, for a 20% down payment. So we’re going to have to rent for a year or two to build up that 20% savings. I really, really hate renting and want my own house again.
- Emergency Fund. We have the requisite, Dave Ramsey sanctions $1000 baby emergency fund (plus an extra few hundred). That’s it. It’s enough to cover most repairs (HVAC system, tires, etc) but it certainly isn’t enough to cover 3-6 months of expenses. Now that my husband has moved to a private sector job, it’s not as secure as his government job was and we need to be prepared in case something happens. He does have a very secure part-time job that would definitely help in the event of a layoff but it certainly wouldn’t be enough. We really need to build this part of our saving up.
It’s hard to prioritize which one is the most important. We have a finite amount of money coming in and we need to build up all of these savings buckets. On any given day, I’ll tell you that a different one should be the most important; it’s all very confusing to me and I don’t know where we should send our money (for the record, the husband is just as confused as I am).
Knowing that we need to do all of this is making me extremely anxious. I wish there was some sort of baby steps plan for savings (I realize Dave Ramsey touches on this but it’s really not specific enough). Maybe I should develop that.
What do you suggest I do?
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Have you considered travel? I’d probably divide into all of these – I’d save up for a new car, put money into retirement, college, EF and down payment maybe in rotations. Actually, in reality I’d probably lose control and spend it all on lattes and clothes, but that’s just me 😉
Daisy recently posted…On Undiscovered Talents and Hobbies
Travel is it’s own line item in the budget, separate from all of this. But I agree with you that it’s extremely important.
Hmmm… If you’re a DR fan you could just continue up the rest of the steps, which I guess would leave the emergency fund as next.
I’d probably pur the first $$ into the emergency fund – maybe not all the way to 6 months, but something more significant. Then I’d split it up between down payment and retirement. I know college is important, but it’s also an expense that you’ll incur when you’re still young enough to work (or work extra) and cash flow, so setting up a solid base around that and delaying college by a year or two wouldn’t be the end of the world, IMO.
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That’s a pretty solid plan. I’m in the “we need a bigger EF” camp especially now that my husband is in the private sector. Splitting up the down payment and retirement is definitely viable…
I would definitely add to the emergency fund first – to me, that’s the most important. I think starting a 529 is a great idea and putting daycare payments in there makes a lot of sense.
I agree with Daisy above, I would also have a “fun” account to put some money into – it’ll encourage you to save more and you get something fun out of it! Whether you want to travel, buy stuff, just go out more – it’ll be nice to fund that kind of savings account.
Congrats on paying off your debt!
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Hey Jana! Well, I think first priority should go to the emergency fund. Fate likes to mess with us from time to time and you don’t want some emergency to knock you out of the water. I would then give some money to your “new car fund” …again that whole fate thing! Retirement, down payment, and college fund can all be funded once the first two are where you want them to be. Just my opinion 🙂
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Thanks, Mackenzie! That’s two votes for the EF first. I’m thinking that you guys are a telling me something…
Jana,
Being a DR fan, I would continue with the baby steps, increasing your emergency fund next to 3-6 months of expenses (I would personally do 6). Next, I would do baby step 3b, like I am doing, and save for the down payment. Once you have that done, I would do the retirement and college saving.
Three votes for the EF! And we have a winner! We’ll be working on the EF first.
save save save, build up more savings. I thought that I would feel less broke after becoming debt-free but the house, but I don’t because i’m funneling every extra penny into savings/investing/mortgage prepayments now. if I want to I can take a month ‘off’ from doing that but I think it’s important to get that emergency fund nice and loaded up!
I agree that saving is the most important part but there’s just so much to save for! It’s very overwhelming.
Definitely add to the emergency fund, but what about paying off your husbands student loans? If its a big loan then you guys are probably maxing the interest deduction and there’s one less payment you have to worry about right?
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We actually have a solid plan for paying down his loan. Once we get settled with our housing situation, we’ll be able to enact that plan. But it’s a great suggestion!
I’d go with the emergency fund first, then retirement savings, then college savings. As long as you’re saving the money somewhere though you are doing good.
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That’s a good point. As long as we’re saving, that’s a good thing, right? But you all have me convinced that the EF is the best place to start!
I don’t know about you but it would be a toss up between the EF and paying off the student loans.
P.s Congrats!
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We’re going with the EF first! When we move, we’ll move forward with our student loan plan. It’s his call on what he wants to do with that, though.