How to divide $625 per month savings

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jtea3051
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How to divide $625 per month savings

Post by jtea3051 » Tue Jan 03, 2012 8:44 pm

Here is our dilemma. We have $625 of money to save, invest, payoff debt etc. Here is our situation. We are in our mid-30's and only have about $20k for retirement.

Debt: Two Car Loans

$15k (0% interest with 40 months left)
$16k (2.0% interest with 55 months left)

Emergency Fund: 1 month of savings ($6k)

Her 401(k): $18k with a safe harbor contribution of about $1,600 per year. No good index funds to choose from.

My roth: $2k at Schwab in Couch potato. (50/50 tsm and tbm).

How should we use our $625 per month? Any help would be appreciated.

trees
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Re: How to divide $625 per month savings

Post by trees » Tue Jan 03, 2012 8:53 pm

I would build up your emergency fund until you have at LEAST 3 months of expenses covered.

rr2
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Re: How to divide $625 per month savings

Post by rr2 » Tue Jan 03, 2012 8:59 pm

Put it in safe investments in a Roth IRA. It can serve as an Emergency Fund in a pinch.

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mhc
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Re: How to divide $625 per month savings

Post by mhc » Tue Jan 03, 2012 8:59 pm

I would get the emergency fund to 3 months, then start maxing out the Roths. Roths can also serve as an emergency fund because the contributions can be taken out without paying any taxes or penalties.

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Toons
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Re: How to divide $625 per month savings

Post by Toons » Tue Jan 03, 2012 9:01 pm

" How should we use our $625 per month? "

Easy :D :D

Work on paying off -$16k (2.0% interest with 55 months left)
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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honkeoki
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Re: How to divide $625 per month savings

Post by honkeoki » Tue Jan 03, 2012 9:26 pm

Congratulations! Your head's in the right place and you're making progress! :sharebeer

When I was in this situation I couldn't stand to save toward just one goal at a time. So here's what I did:

- 33% to pay down debt (though this is hard, considering that your interest rate is BELOW the current rate of inflation...)
- 33% emergency fund (my family maintains 6 months of expenses, 1/3 in Ibonds, 1/3 in 401k, 1/3 in CDs and a bond fund)
- 33% 401k (first choice, it's before-tax) or IRA

This allowed me to feel like I was making progress on multiple fronts. Also, I'm rather financially conservative, so a bigger and diversified emergency fund helped me feel secure.

Listen: you're going to get a lot of conflicting advice (well, a lot more) but the important thing is to keep saving and do what's right for your situation and your family. There's always going to be the temptation to make things more complicated like I did, and you can just say no to that and just keep stacking up the dollars.
Be smug when others are fearful; be fearful when others are smug.

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Exige
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Re: How to divide $625 per month savings

Post by Exige » Wed Jan 04, 2012 5:21 pm

we are in about the same boat my car only has 6700$ left and im making triple payments on it. With the left over savings of about 700 we are splitting it between a car fund, house fund, and vacation fund, in ally. I am also doing 50$ a month into the Efund because we have already hit the 7 months mark in that one.

For you I would do what most have said and destroy the debt its a guarenteed return!
‘I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you.'

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englishgirl
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Re: How to divide $625 per month savings

Post by englishgirl » Wed Jan 04, 2012 5:36 pm

Also take a look at why your expenses are so high. If $6k is only 1 month of expenses between 2 of you, I'd bet you could find some extra cash with some economizing.
Sarah

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Jay69
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Re: How to divide $625 per month savings

Post by Jay69 » Thu Jan 05, 2012 8:43 am

honkeoki wrote:Listen: you're going to get a lot of conflicting advice (well, a lot more) but the important thing is to keep saving and do what's right for your situation and your family. There's always going to be the temptation to make things more complicated like I did, and you can just say no to that and just keep stacking up the dollars.
+1

A good time to update/start your IPS, its a new year and your getting started on the right foot! A short 1 or 2 line IPS to serve as goals is not a bad thing!

Now to your question, keep up your savings rate and apply it to what makes you happy, happy as in paying down debt, emergency fund etc and not a new boat. Myself I would fill up the Roth to use as an emergency fund (ultra safe investments, MM) first than pay down the debt. Some may say with the rates so low on the cars not to worry, I not wired that way myself.

I like the feel of a 6 month emergency fund, at your current savings/spending rate its would take you about 5 years to get to that goal. I may spend some time thinking about how to close that gap to 3 years or less.
"Out of clutter, find simplicity” Albert Einstein

guitarguy
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Re: How to divide $625 per month savings

Post by guitarguy » Thu Jan 05, 2012 9:52 am

Out of curiousity, what is your income and tax bracket? If you have $6k/m in expenses, that says you have a pretty high income level and maybe a high tax bracket as well? Why Roth??

As for the savings, I'd second the opinion to split between prepaying debt, building your e-fund, and saving for retirement. Decide on percentages that make you comfortable.

If I were in your shoes I'd prioritize saving a 3-month e-fund before prepaying that low interest debt. 1 month's savings isn't enough to keep me comfortable.

lazyfabs
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Re: How to divide $625 per month savings

Post by lazyfabs » Thu Jan 05, 2012 10:40 am

If you both have stable jobs and don't foresee any changes in the future, figure you still have a solid 25-30+ years until retirement. That being said I'm all about paying oneself first. Do that to the level you and significant other are comfortable with (retirement and non-retirement), then once that goal is met to both of your satisfaction, work on paying down the debt. As other have stated the one you are paying interest on first.

If both of your job situation is dicy, that's another ball game.

You are on the right mind set and w/ a little tweaking you will be just fine.

Salud :beer :beer
"I think the best way to find happiness is to stop looking so hard." - Kermit the Frog

Wolkenspiel
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Re: How to divide $625 per month savings

Post by Wolkenspiel » Thu Jan 05, 2012 11:03 am

jtea3051 wrote:Here is our dilemma. We have $625 of money to save, invest, payoff debt etc. Here is our situation. We are in our mid-30's and only have about $20k for retirement.
Out of the EF/Roth/debt-payoff options, I would stick it all in Roth IRA's (I'm not as debt-averse as the average Boglehead)- with $625/month you can't max out the Roth's for a couple. If you built the EF first, and there's no emergency, you've lost the tax-advantaged space. If you put the cash in the Roth, and there is an emergency, you can take it out and be no worse off than you would otherwise have been. OTOH, I think all the other suggestions in the thread are fine as well. The only thing I wouldn't do is use all the cash to pay off the debt - I month of expenses in the EF seems really marginal.

I didn't follow my own advice some years ago, and now find myself wishing for more Roth space to implement my desired asset allocation with my preferred funds.

ilmartello
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Re: How to divide $625 per month savings

Post by ilmartello » Thu Jan 05, 2012 1:43 pm

you need to save more money

bungalow10
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Re: How to divide $625 per month savings

Post by bungalow10 » Thu Jan 05, 2012 1:54 pm

Stop taking on debt so you can save more.

Sell the cars, pay off the loans, and then buy something cheap until you can meeting your savings goals for retirement and pay cash for the next cars.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

bmelikia
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Re: How to divide $625 per month savings

Post by bmelikia » Thu Jan 05, 2012 2:00 pm

I think you guys need to look at cutting expenses in terms of your lifestyle. . .

If you are really making $6,000 a month, you need to either get a cheaper apartment/house, less expensive vehicle(s), cut/reduce cable bill, minimize eating out, see if there's anything you can do to get a cheaper cell phone bill, have a plan when you go shopping for groceries. . .I dunno, just thinking out loud but it's imperative that you take a good hard look at this. It's a reduction in your spending which will free up money for additional savings. . .it's tough, but in the end it's worth it.

Btw, I'm assuming you're suggesting that $625/month is the total amount that the 2 of you have available to save total and that you are not already saving.

Best of luck
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

jtea3051
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Re: How to divide $625 per month savings

Post by jtea3051 » Thu Jan 05, 2012 5:38 pm

bmelikia wrote:I think you guys need to look at cutting expenses in terms of your lifestyle. . .

If you are really making $6,000 a month, you need to either get a cheaper apartment/house, less expensive vehicle(s), cut/reduce cable bill, minimize eating out, see if there's anything you can do to get a cheaper cell phone bill, have a plan when you go shopping for groceries. . .I dunno, just thinking out loud but it's imperative that you take a good hard look at this. It's a reduction in your spending which will free up money for additional savings. . .it's tough, but in the end it's worth it.

Btw, I'm assuming you're suggesting that $625/month is the total amount that the 2 of you have available to save total and that you are not already saving.

Best of luck
Thank you to all who responded. We are not doing as bad as some of your readers may think. We have different priorities in life. We give away around $900/month in tithe and offering, we send our oldest to a private Christian school, but we do have two cars that are hurting us. We aren't looking to retire early or anything like that. As a matter of fact, we look at retirement as a new starting point, not just r & r.

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Aptenodytes
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Re: How to divide $625 per month savings

Post by Aptenodytes » Fri Jan 06, 2012 3:04 pm

I would pay the minimum on the cars. For savings, I would first build the emergency fund to about $20K. Then I would fund the Roth. Seems pretty straightforward.

Your savings rate is pretty low. I agree with the suggestions made by others to look for ways to get that percentage up a bit.

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