Hit my EF GOAL! Ok, but now what?

[ambitions2o]

Hello everyone,

I have been a recent lurker around these boards and have begun to change my financial budgeting/goals because of it. In regards to my EF, I guess I have always had one, but just never really labelled it as that - more of just a "savings" account.

As of now, I have hit my goal of a 7 month EF (I am contributing 21% of my gross at the moment). However, now that I have created a cushion, I was thinking of scaling this down to a lower level (say 8-10% of gross) and using the difference toward my school loans and starting a ROTH.

My question is once many of you hit your EF goal, do you just stop contributing? If you do continue to contribute (and keep in mind you have other debts i.e. just my school loans) what percentage have you scaled it back at?

Thanks.

JM

[ActYourWage]

To answer your question, I would stop the EF contributions and quickly focus on the debt and retirement funding. Once your goals are hit on those, then you can set up sections in your budget for bigger purchases such as vehicles, vacations, etc.

[frugalgirl]

Originally Posted by ambitions2o

Hello everyone,

I have been a recent lurker around these boards and have begun to change my financial budgeting/goals because of it. In regards to my EF, I guess I have always had one, but just never really labelled it as that - more of just a "savings" account.

As of now, I have hit my goal of a 7 month EF (I am contributing 21% of my gross at the moment). However, now that I have created a cushion, I was thinking of scaling this down to a lower level (say 8-10% of gross) and using the difference toward my school loans and starting a ROTH.

My question is once many of you hit your EF goal, do you just stop contributing? If you do continue to contribute (and keep in mind you have other debts i.e. just my school loans) what percentage have you scaled it back at?

Thanks.

JM

Now that you have an emergency fund of 7 months in place, I would stop contributing to it completely. Without knowing your entire situation (age, debt load, retirement savings) I would now put all of those contributions towards debt elmination. Again, depending on your situation, you could simultaneously pay off debt and contribute to a retirement account like a Roth.

[MonkeyMama]

Well, it depends what your financial goals are. My cash savings doubles as an EF. I am always contributing to it because there is always something to save for (a house, a car, medical bills, dental work, home maintenance, whatever). So, just because you have a decent EF doesn't mean you won't have other near term savings goals. Longer term savings goals can be invested more aggressively, but nearer term ones are best saved in cash. I save how much I project I will need. (I always call my cash saving my "anti debt" fund, because it prevents having to borrow for things. Which can be just as important as paying off debt).

The rest of your question? It depends. Are you putting anything to retirement? How much are the student loans - what's the interest rate? I'd probably make retirement savings a priority. But if you have some horrific student loans and you are really young, I might make the loans a priority.

[flippinterp]

Now that you've hit your goal, it's time to re-prioritize. I think it would be wise to scale down your contributions to the EF significantly (maybe 5% or so of income). The biggest factor seems to be the interest rate on your student loans- if it is low (under 5%), focusing predominantly on the Roth would likely serve you well if you don't mind it taking a little longer to pay off the loans. If you're more concerned about cash flow or finishing off that debt, then by all means pay off the student loan. Of course, it doesn't have to be an all-or-nothing thing. You could do 5% to the EF, 10% to retirement, and 5% towards the student loan in addition to the minimum payments.

Since you asked what others have done, I set up two EF goals- an "I can sleep at night" goal of 3 months, and an ultimate EF goal of 8 months. I focused exclusively on the EF until I hit that 3 month goal, and then I split my savings 50/50 between the EF and a Roth contribution. I still have the peace of mind that I'd have some money in the event of emergency car repairs or doctor bills, but I also didn't want to miss out on contributing to retirement. Once I hit the 8 month goal for the EF, I'll probably split my savings between the Roth and other goals (house downpayment, car, etc).

[DKAS]

Originally Posted by MonkeyMama

Well, it depends what your financial goals are. My cash savings doubles as an EF. I am always contributing to it because there is always something to save for (a house, a car, medical bills, dental work, home maintenance, whatever). So, just because you have a decent EF doesn't mean you won't have other near term savings goals. Longer term savings goals can be invested more aggressively, but nearer term ones are best saved in cash. I save how much I project I will need. (I always call my cash saving my "anti debt" fund, because it prevents having to borrow for things. Which can be just as important as paying off debt).

The rest of your question? It depends. Are you putting anything to retirement? How much are the student loans - what's the interest rate? I'd probably make retirement savings a priority. But if you have some horrific student loans and you are really young, I might make the loans a priority.

This is the approach I use, if you are satisfied with EF than increase your retirement contributions if you don't have a specific goal in mind such as buying a house.

[Frugal]

No in my opinion, I would not stop contributing just because I reached a certain mark. I also have student loans like you mentioned, but in my opinion, you can never have too much in an EF to prepare for unforeseen events like a car breaking down or something bad happening that there is no way to prepare for.

[danieldroga]

It depends on your financial capability. If you can continue paying for it then just do it. But if you are in a tight budget where you have already set the priorities that you have to invest your money with then first things first.

[ambitions2o]

Thanks for all the replies.

I ran the numbers Saturday morning and determined what I was going to do. I am scaling back my EF contributions to 13% of my net pay and will revisit the it in a few months to see how it has been going with my budget. The difference will be put toward my school loans until the remainder of the year where I will then start a ROTH in January.

My main focus is paying down these loans within a year.

Again thanks for all your replies.

[bjl584]

Originally Posted by ambitions2o

Thanks for all the replies.

I ran the numbers Saturday morning and determined what I was going to do. I am scaling back my EF contributions to 13% of my net pay and will revisit the it in a few months to see how it has been going with my budget. The difference will be put toward my school loans until the remainder of the year where I will then start a ROTH in January.

My main focus is paying down these loans within a year.

Again thanks for all your replies.

Do you have a purpose for saving above your EF goal? New car? House downpayment? Etc.? If so, then I agree that you should continue to save, but the savings rate that you save will have to be determined by your savings goals. If you have money saved for other purposes than your EF, then I would start to shift some of your money to investing and debt repayment.

[PetMom]

We keep a hefty EF and don't use it.

We keep a 'cushion' of a few thousand in the bank account for actual unexpected expenses.

If the cushion starts to get low we go on a tight budget plan.

Congratulations on getting an EF - it will give you security and you don't cringe when
you hear those creaks and groans in car or the a/c goes out, or washing maching needs
to be replaced or a dog gets an ER visit - yes we have had those pop up very close together.

An EF is really worth it.

And we have not touched or need to have a credit card (do have debit cards).

[alphadore]

Congratulations!