Almost at the finish line for TMM baby step 2: debt snowball. Actually, we could have been there on July 19th, but, the laptop hubby has been wanting for so long went on sale for the 4th of July week. We saved $100 by buying it now and pushing the fridge payoff out one more paycheck (Aug 2). Which I think is fine given it's no interest for 3 more months and definitely will be paid off on the 2nd. We chose snail speed shipping though to save on that part, so it will still be another week or so before he gets it, but I'm sure he will be very happy when it finally arrives!
We are starting to look into what the next financial steps are. Dave Ramsey says baby step 3 should be saving a 3-6 month emergency fund (building on the $1000 one from baby step 1). That would be about $18,000 for us and would take quite some time. And in the meantime, we would still not be taking advantage of the 3% 401K matching hubby's company offers (not to mention just plain starting to save for retirement period, even though we're both entering our late 30's.) Additionally, our '99 SUV is probably not going to last much longer and certainly will be an emergency when it dies. And we want our next car purchase to be a slightly used, reliable family vehicle with low miles that we can count on driving for at least 8-10 years.
So, we're thinking of taking a middle of the road approach. I've opened a money market account with Ally bank and transferred our $1000 emergency fund there. As soon as the fridge is done we are going to work on building that up to $5000 as fast as possible. After that, we have some home maintenance issues we have been putting off forever that we need to take care of. Getting all of that accomplished is going to push us well into the end of Oct.
But once we're there, we are going to start putting 6% of hubby's paychecks into the company 401K (the maximum matching amount). And come open enrollment in Nov we are also going to up our HSA/FSA medical contributions to the max for the coming year. That's going to take quite a dent out of our monthly income, but with all the debt we've now paid off (as well as the decrease in taxable income from the 401K/HSA/FSA), we should still be able to raise our entertainment budget from what it has been these past 9 months, and still work towards saving for a new vehicle.
We originally wanted to save for it completely before purchasing, which would have taken about a year, but our daughter really needs a car for the college internship she wants to do next summer. Assuming the SUV is still running then, we'd like to pass it off to her by next May so she can do that. That said, we should be 80% of the way there by May with hubby's bonus, so it shouldn't be too bad to take out a small loan at that point and pay it off in 4-6 months.
At that point, I will be starting school again (just a few classes at a community college to begin with) so there will be some tuition to take care of. But we will also need to start kicking up our savings as well. I'm looking into a Roth IRA for that, and Ally bank seems like a good place to help us with it. Given that you can withdraw contributions without penalty if needed, I feel like this could double with retirement and most of our remaining 3-6 month emergency fund. Short of job loss, I doubt we will ever need more than the $5K we will already have set aside in the money market (which I will keep separate). And $18K seems like too much money to just have sitting in a low interest account, when it will likely never be used, while we make no progress on retirement. Dave Ramsey would not approve, and I'm still looking into the details, but right now that's the plan.
Closing In
July 13th, 2013 at 04:46 pm
July 13th, 2013 at 05:10 pm 1373735456
I think you should plan to eventually have the full $20K for your EF, though. I increased the $18K amount to allow for about a 10% drop in value. Job losses do occur, and it would be terrible to be forced to take a sub-optimal job just because of the time factor. The EF gives you the leeway to take your time in your job search after a job loss.
Congratulations on finishing baby step 2. I just went back to baby step 2 with a car loan, but that's by choice and by life changes that were thrust upon us without notice.
July 13th, 2013 at 06:31 pm 1373740319
I just question maxing that out if you won't be able to use the money by the end of the year and will end up losing some. How much do you need for medical expenses in one year plus 5 or 10%?
But I like the rest of your planning!
July 13th, 2013 at 07:00 pm 1373742012
As for the HSA @Kristins, it is only FSA's that you have to use by the end of the year. The HSA will roll over (and therefore hopefully lower our needed contributions for the next year). We've never done an FSA before and next year will probably be the only year we do it in addition to the HSA. This year though, we got hit hard with medical expenses that exceeded what we had planned for, and had to push off some procedures until next year. So we will definitely use it next year.
Supposedly you can also use HSA accounts to save for medical expenses in retirement. I am completely clueless about this and it's probably a few years down the road for us anyways. But does anybody know if that's a good idea or something we should be planning for?
July 13th, 2013 at 07:45 pm 1373744741
July 13th, 2013 at 09:48 pm 1373752088
Now at the state it isn't offered so I have my own savings account which works for me.
It is nice to know yours allows hat you can roll over contributions in the HSA.
July 13th, 2013 at 10:48 pm 1373755696
September 6th, 2013 at 05:25 pm 1378488319