Here's the thing, many people seem to consider your house and school loans outrageous and should not have happened. I think it's fine, but take a different tack. One such that those are expensive, but kids are moreso (as childcare costs indicate). Thus an easier answer than don't buy that house, don't go to graduate school, don't take out student loans would have been not have kids 1 year later. BUT no one likes to hear it.
And like I said, it's all done. Student loans, kids, and mortgage.
I think that moving forward you just have to be more strategic. I'd personally keep all my debt and pay it off slowly. But I like to have cash on hand, in the sense of keeping it invested. NOT actual money market cash.
My DH won't allow for a traditional EF. We can keep maybe 1 month of cash in checking, 1 month in savings and the rest is always invested.
His opinion and one I won't fight about is that it's all one pot of money. Whether we are laid off or injured, we're going to run through our taxable money either way. So it doesn't matter where it is, as long as we have enough of it. Meaning if we have say 3 months invested and we're adding to it, then who cares if it's a bit above and growing? Am I really going to say I only need $15k and I'm done???
No, it's still our money. We might accrue say $100k in taxable account and then get hit with layoffs. We won't sit there and say "oh we shouldn't spend more than our EF?" it's Crazy.
And I agree with Jim, I budget my monthly expenses with all luxuries. When the time comes I can cut, but cutting bare bones budget beforehand is not smart. It's asking for more trouble when it happens.
And previously my DH had a car loan for 3 years @ 0%, we kept it all 3 years. Because we had the cash to pay it off but we would have been broke otherwise. This way we had an emergency fund and were able to pay it monthly, so even if we had lost our jobs in the 3 years we could have still have made payments.
So debt properly managed can be a good thing. We weren't rich but we were trying to manage our cash flow.
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