justme824 Posted March 3, 2013 Share Posted March 3, 2013 I am working on setting up a new budget and I am trying to figure out what to do with the extra. Here is my situation in a nutshell: *Our only debt is our house and equity line. Don't mind the mortgage, but would like to chip away at the equity line a bit. *We have roughly two months savings, could squeeze to three with a lot of sacrifice (which, of course, we would try and do). We'll hit 3-months by the end of April if all goes well. I've also got funds set aside for car/appliance repair/replacement. *We are only saving $50 to retirement at the moment and that is so not enough obviously ;) We are both 35 right now. *My husband is in a very stable job and well taken care of. *We have two kids at the moment. Not sure what will offer as far as education goes. *We love to travel and that needs to come out of these leftover funds. After paying for all our needs & giving ourselves some 'fun' money (not much) each month we have a nice chunk leftover. So really I need to figure out how I should split the extra up. Should we keep saving in our emergency fund? Or put a large chunk to the equity line (which is not frozen and will be readily available if needed) (my husband's choice)? Or would you do a little to both? If you go for emergency savings how much would you save before you switched it over to equity? How much should I earmark for retirement? Should we start now? Get the savings first? Pay off some equity first? Then there is travel that I just need to figure out. I'd like to save for some larger trips now that we are more financially able to do so. Pretend it is just $100 left at the end of the month. How would you split it up between the categories. If I take $60 and put towards retirement that would be 15% of our gross income, which is what our goal is to arrive at. That will leave me with $40 to spread between extra savings, equity line, and travel. There is more info in post #9 too :) Quote Link to comment Share on other sites More sharing options...
blessedmom3 Posted March 3, 2013 Share Posted March 3, 2013 Dave Ramsey talks about that. I got a lot of excellent tips from him. Just listed the CDs in the for sale board if interested :) Quote Link to comment Share on other sites More sharing options...
Flowing Brook Posted March 3, 2013 Share Posted March 3, 2013 I would probably put 50 in retirement and twenty five in equity line and twenty five in the emergency fund. Use my fund money for trips. If I did not have enough for a trip I would save my fun money every month until there was enough. Quote Link to comment Share on other sites More sharing options...
happypamama Posted March 3, 2013 Share Posted March 3, 2013 I'd first decide whether it seemed like my income was pretty stable, or if it might be on shaky ground. If the latter, I'd try to build up a bit more savings. (Also, as a side note, I'd want to know what my game plan would be, should I lose all income suddenly. For some people, that might include applying for food stamps, but in some states, if you have a bit of cash in the bank, you will have too many assets and food stamps wouldn't be an option, in which case, you'd need to make your savings stretch even farther. Does that make sense?) I'd also, if I had the spare money in my budget, set up funds aside from the emergency fund, for things like car repair/replacement and appliance repair/replacement -- the things that you really can't live without very well for very long. Once I had a fair chunk in those (at least a few thousand in each), I'd think about upping the retirement savings. And then trips. Quote Link to comment Share on other sites More sharing options...
SKL Posted March 3, 2013 Share Posted March 3, 2013 I would put it into retirement up to the point where the tax benefits on retirement savings end. After that I would put it into savings. I'd put it in an easily-accessible account up to, say, 6 months' emergency fund, and then into higher-earning CDs with various maturity dates (6 mos and longer). Until I was comfortable with my level of savings (retirement, emergency fund, education fund), I would go modest on fun money including trips. (And believe me, I love to travel.) I also prioritize charitable giving over fun money. ETA: Seems I forgot about the debt part! Personally I abhor debt, but there is some benefit to having home equity debt as it can decrease your taxes. So if you can earn more on savings than you pay in after-tax mortgage interest, it makes sense to keep the debt. Otherwise, I'd go very frugal on the fun / travel money until the debt was gone. A modest treat here or there, but otherwise I despise debt. (Possibly because I was about $200K deep in it just a couple years into my career, thanks to student loans and a house mortgage.) Quote Link to comment Share on other sites More sharing options...
BakersDozen Posted March 3, 2013 Share Posted March 3, 2013 Here's what we did in a similar situation: 1) Home equity line of credit paid off as quickly as possible. We purposed to not do anything (travel, eat out, etc.) until it was paid off. That took about 10 months. 2) 3 months of savings set aside. Until that point, we didn't do anything extra (took about 6 months). 3) Any "extra" funds coming in after #1 and #2 were done went to savings first (about 50%), then fun $. Debt is a burden we didn't want so it was worth it to us to give up some "fun" stuff for a short time in order to be free from debt. I have to share what a JOY it was to sit down with our dc this last week and show them using Monopoly money what we were able to do with our income tax refund because we have been debt free since Jan. 1998. We are able to travel and do fun stuff (except for eating out) now since we made the sacrifice years back in order to pay off all debt and build our savings (our goal is a year of pay). Quote Link to comment Share on other sites More sharing options...
Evergreen State Sue Posted March 3, 2013 Share Posted March 3, 2013 I would need to know how stable your current income is to advise how much to save in case you lost your income. We have a few people in our lives who have lost their jobs and have been out of work for 6 months to a year. These days I think you need to be prepared for that. I thought Suzy Orman used to say have 6 months of living expenses in the bank, but with the current economy she thought more like 8 months. Next, you didn't mention how close you are to retirement or if you had children you wanted to help with their college education. I don't even know what an equity line is to advise you there. Is that like borrowing against your house or is that putting extra money down toward the principle? You also need to know what your goal is as far as paying off your house. Did you want to pay it off early? If you pay off your house early, then you would have extra income that you wouldn't be paying on your house that you you could use for your retirement. $100 a month would only be $1,200 in a year. That is easy to spend on vacation travel if that is your priority. If travel is not your priority, I would focus on your emergency fund, then eliminate your mortgage debt, then work on retirement. Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 3, 2013 Author Share Posted March 3, 2013 I'd also, if I had the spare money in my budget, set up funds aside from the emergency fund, for things like car repair/replacement and appliance repair/replacement -- the things that you really can't live without very well for very long. Once I had a fair chunk in those (at least a few thousand in each), I'd think about upping the retirement savings. And then trips. We've got savings for those things that we'd need to replace immediately. I actually just built our one up again after replacing a water heater in December. I don't like to really think of this as our emergency savings though, since these things can happen when out of work too. Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 3, 2013 Author Share Posted March 3, 2013 Thanks for the input. Here is a bit more information... The extra amount is pretty significant, not just $100. I used $100 because it is more like thinking in percents and I thought that would be easier. We are very fortunate right now with income, my husband's job is very stable and he is well taken care of. I want to make sure we put the extra in the right place. Getting to 3-months emergency fund won't take long - we are very close and I am thinking I'll at least get us that far. I am just trying to decide if we need to go further than this right now. My husband's job is very stable, the company is doing very well, and we aren't worried about him losing it. But, since you never know, we want to be prepared for it. And this is 3-months looking our budget right now. Obviously in that situation we'd cut way back in several areas to stretch the money as far as possible. I do also have funds set aside for car/appliance repair/replacement needs so I am not worried there. We are 35 with two kids. Not sure how much we will help with college education at this point. We both paid our way so we just aren't sure how we will handle that yet. But I know we need to start thinking about retirement. We've been advised by others to put 15% of our income towards retirement. With that amount towards retirement we'd still have about 40% extra leftover to decide where to put. I guess we could go crazy skimping and saving every last dime towards paying down equity (just the home equity line - we don't mind having a mortgage, but would like to start chipping away at the equity line), saving for retirement & college - but what about now? If we did that we'd never have fun with our kids now and be able to enjoy traveling with them. So we'd like to put aside some money for travel now, not just when we finally retire. Quote Link to comment Share on other sites More sharing options...
BakersDozen Posted March 3, 2013 Share Posted March 3, 2013 We also love to travel with the dc and have been able to for years (not to Europe or anything but to Mexico, Yellowstone, a 6-week long trip across the U.S. two years back, etc.). Our travel $ comes out of tax refunds and my dh's two "extra" paychecks each year (paychecks that don't have health insurance taken out). If we have behaved ourselves, gotten/stayed out of debt (not including mortgage), then we "share" the extra $ between debt prevention (line items in the budget, savings), and travel/fun. Is your equity line something you could knock out in a year? If so, could you as a family work together to focus on paying that off (avoid some of the bigger extras) so as to free up $ for fun stuff? How much interest are you paying on the equity line? I can't stand paying interest as I'd much rather keep that money for my own family! There must be travel opportunities that cost less that you could do in a year while you pay off the equity line. With our travel we have two years of smaller trips (week-long, usually stay with friends) and then the next year is a bigger/more expensive trip (this year it will be touring the Northwest for 4-5 weeks). Honestly, with the way you describe your financial situation I don't see why you can't pay off debt, build up savings, and travel. The less debt you have, the more $ you can put toward those last two things which is very freeing indeed! And this is 3-months looking our budget right now. Obviously in that situation we'd cut way back in several areas to stretch the money as far as possible. When I set up our savings goal I looked at what we need bare minimum, meaning I took out all extras and added up what we would need to keep our house (very low mortgage payment, thank goodness), pay our basic bills, etc. I didn't base what we needed in savings on our current budget with some of its "extras". If you built a savings based on bare minimum needs only, you might be able to get 6 months of savings very quickly! Quote Link to comment Share on other sites More sharing options...
2squared Posted March 3, 2013 Share Posted March 3, 2013 I would put more than 15% to retirement. If you haven't really started saving yet, you are very behind at 35yo. 15% is a minimum amount for people starting to save in their early 20's. By 35yo, the lowest rule of thumb is to have 1X your annual income saved for retirement working up to a minimum of 3x by 45yo. Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 3, 2013 Author Share Posted March 3, 2013 I would put more than 15% to retirement. If you haven't really started saving yet, you are very behind at 35yo. 15% is a minimum amount for people starting to save in their early 20's. By 35yo, the lowest rule of thumb is to have 1X your annual income saved for retirement working up to a minimum of 3x by 45yo. We are behind, yes. But we do have money in a 401k from a previous job, and a hefty mutual fund that my husband has been saving monthly in since he was 13 (we do still add to this now, just not like he used to). Since his new job (a couple years old) we haven't figured things out since they don't offer a 401k plan here, so here I am trying to finally get things back on track! Thanks for the input. No matter what we do I know there is no way we could have 3x our annual income in 10-years, but we make significantly more than we need to live now so maybe we need to figure out where we should be to live how we'd like? Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 3, 2013 Author Share Posted March 3, 2013 We also love to travel with the dc and have been able to for years (not to Europe or anything but to Mexico, Yellowstone, a 6-week long trip across the U.S. two years back, etc.). Our travel $ comes out of tax refunds and my dh's two "extra" paychecks each year (paychecks that don't have health insurance taken out). If we have behaved ourselves, gotten/stayed out of debt (not including mortgage), then we "share" the extra $ between debt prevention (line items in the budget, savings), and travel/fun. Is your equity line something you could knock out in a year? If so, could you as a family work together to focus on paying that off (avoid some of the bigger extras) so as to free up $ for fun stuff? How much interest are you paying on the equity line? I can't stand paying interest as I'd much rather keep that money for my own family! There must be travel opportunities that cost less that you could do in a year while you pay off the equity line. With our travel we have two years of smaller trips (week-long, usually stay with friends) and then the next year is a bigger/more expensive trip (this year it will be touring the Northwest for 4-5 weeks). Honestly, with the way you describe your financial situation I don't see why you can't pay off debt, build up savings, and travel. The less debt you have, the more $ you can put toward those last two things which is very freeing indeed! When I set up our savings goal I looked at what we need bare minimum, meaning I took out all extras and added up what we would need to keep our house (very low mortgage payment, thank goodness), pay our basic bills, etc. I didn't base what we needed in savings on our current budget with some of its "extras". If you built a savings based on bare minimum needs only, you might be able to get 6 months of savings very quickly! Thanks - lots of food for thought! I am not sure we could crank the equity line out in a year, but maybe 18-months or so. I'll have to crunch some numbers. My husband was hoping for 3-years, but maybe we can pinch a bit more and cut it in half. Like you said, if we can cancel that equity line out of the equation it will be very freeing! Quote Link to comment Share on other sites More sharing options...
Running the race Posted March 4, 2013 Share Posted March 4, 2013 It depends how much you owe on the equity line. If you can pay it off within 18 months, I'd throw everything at it until it's gone. But I'd ONLY do that if you purpose not to borrow on it again. I'd build your emergency fund up to three months. If you are eligible for Roth IRA's, I'd fund them next while also saving some "fun" money. Quote Link to comment Share on other sites More sharing options...
solascriptura Posted March 4, 2013 Share Posted March 4, 2013 Since you said that your husband's job was secure, I would sink the entire amount into the loan. It will be a tremendous relief once it is paid off. After it is paid off, I would work on getting liquid savings up to 8-12 months, but also put a small percentage towards the vacation money. Quote Link to comment Share on other sites More sharing options...
Annie G Posted March 4, 2013 Share Posted March 4, 2013 We've been advised by others to put 15% of our income towards retirement. With that amount towards retirement we'd still have about 40% extra leftover to decide where to put. I guess we could go crazy skimping and saving every last dime towards paying down equity (just the home equity line - we don't mind having a mortgage, but would like to start chipping away at the equity line), saving for retirement & college - but what about now? If we did that we'd never have fun with our kids now and be able to enjoy traveling with them. So we'd like to put aside some money for travel now, not just when we finally retire. I'm not sure what you mean when you say that if you save 15% of your income for retirement that you'd still have 40% extra to decide where to put- 40% of your income or 40% of your monthly budget surplus? If you are only saving $50 a month for retirement now but can easily up it to 15% and STILL have money leftover, that would be excellent. With that much left over you should be able to eliminate the equity loan quickly and still save some for fun/travel. Where has all this monthly surplus been going until now? Is it one of those 'on paper we should have hundreds extra' but it gets used for emergencies/fun/unanticipated bills? Quote Link to comment Share on other sites More sharing options...
2squared Posted March 4, 2013 Share Posted March 4, 2013 Thanks for the input. No matter what we do I know there is no way we could have 3x our annual income in 10-years, but we make significantly more than we need to live now so maybe we need to figure out where we should be to live how we'd like? 3x your annual income isn't impossible. If you start at $0 today, invest 24% of your income each year, and the investments grow an average of 5%* per year over the ten years, you will reach 3x. Compounding growth does amazing things. But....yes, I think you should have a retirement goal and work toward that. The internet is full of retirement calculators. Run a few and see what you think. At least you'll have a ball park idea if 15% is enough for your goals. *5% is just a wild number I picked. Your growth % would depend on your investment allocations. Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 4, 2013 Author Share Posted March 4, 2013 Where has all this monthly surplus been going until now? Is it one of those 'on paper we should have hundreds extra' but it gets used for emergencies/fun/unanticipated bills? As for the monthly surplus until now, this is mostly new money. What wasn't new was already going towards our emergency savings. Quote Link to comment Share on other sites More sharing options...
justme824 Posted March 4, 2013 Author Share Posted March 4, 2013 Just wanted to say thanks to everyone. It has given us lots of things to think about and possible paths to take! We are feeling very fortunate right now income wise and want to make sure we are wise with the money instead of 'throwing it away' and getting stuck. Quote Link to comment Share on other sites More sharing options...
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