Budget Re-Do

[wikiwiki]

We are wanting advice on what to do with our extra income after expenses. We are a family of 5, 3 kids aged 7 and under. DH works full time, I work part time as a contractor. His salary includes health care, 401k (we are putting 10% away at the moment)

Monthly net income is around $6000. Monthly expenses including mortgage, loans, food, bills, are around $3800.

Debt
$6500 on an interest free cc until 11/12
$5000 student loan at 6.5% (paying $150/m)
$15k car loan at 6% (paying $360/m)

We currently only have $1k in an emergency fund. (I know---big risk - but DH's job is stable, as is mine, so we wanted to focus on debt repayment instead)

What is the best use for the $2k each month - knock out the cc as fast as possible, emergency fund, pay down student and car loans, 401k, other savings? We are trying to reel in the spending and have something to show for ourselves each month. We would like to get DH a "new" used car in the next year or so - so we will need to save for that too.

Thanks for the tips!

[DebtFree&Broke]

I would leave your emergency fund at 1K for now. Take the $2k and pay off your student loan since it has the lowest balance and the highest interest (it will be paid off in August). Then use the $2,150 and pay off your credit card, it will be paid off in November. Then start paying $2,510 on your car and you will be out of debt by April.

In 11 months you will have an extra $510 in your budget. Then you should increase your emergency fund to 3-6 months of expenses and increase your retirement contribution to 15%.

[bjl584]

We are wanting advice on what to do with our extra income after expenses. We are a family of 5, 3 kids aged 7 and under. DH works full time, I work part time as a contractor. His salary includes health care, 401k (we are putting 10% away at the moment)

Monthly net income is around $6000. Monthly expenses including mortgage, loans, food, bills, are around $3800.

Debt
$6500 on an interest free cc until 11/12
$5000 student loan at 6.5% (paying $150/m)
$15k car loan at 6% (paying $360/m)

We currently only have $1k in an emergency fund. (I know---big risk - but DH's job is stable, as is mine, so we wanted to focus on debt repayment instead)

What is the best use for the $2k each month - knock out the cc as fast as possible, emergency fund, pay down student and car loans, 401k, other savings? We are trying to reel in the spending and have something to show for ourselves each month. We would like to get DH a "new" used car in the next year or so - so we will need to save for that too.

Thanks for the tips!

Do you actually have an extra $2000 a month? If you do, where is it going at present? If you truly do have an extra $2K a month, then you should be able to pay off your debts and save up for a car in fairly short order. About a year.

[wikiwiki]

The 2k is from my part time work and can go up and down depending on the month. We have been using it for some savings, extra purchases, towards travel, etc. I would like to make better use of it though, either saving it or knocking out these existing debts. (while reeling in our spending)

DH is expecting a $4k+ bonus in September too - should we use it for debt or save it? I feel like we never have savings and it stresses me at times.

[LivingAlmostLarge]

Use the $4k and pay off the credit card. If you don't the rate probably jumps. Then i'd do the student loans and use that extra towards the car later. Do you need a car next year or want one? .I'd focus on paying off the car loan before getting a new used car.

[wikiwiki]

We don't "need" a car yet but it is 10 years old and over 100k so it's not going to last forever. So that is something on the horizon.

DebtFreeandBroke-I saw that you posted a food budget of $25 per person per week - that would be $500 for my house. Do you do that with cash? Is that food only or cleaning/household supplies too? Curently we spent around $800 on food/household a month (diapers are in that too) I'd like that to be lower. I shop around and consider myself somewhat frugal but I do get some items organic.

How should we save for travel - we take little weekend trips here and there and will need to visit family this year - so I'd rather have cash to spend on that then to put in on an interest free cc like we've done before. But if we're trying to pay off debt how is that possible? Is there a recommended % somewhere for savings?

Also-I know retirement is meant to be at least 10% which we have. What about other savings? What is a good %? I have been using these %
Housing 35%
Debt 15%
Transportation 15%
Other expenses 25%
Savings 10%

[bjl584]

The 2k is from my part time work and can go up and down depending on the month. We have been using it for some savings, extra purchases, towards travel, etc. I would like to make better use of it though, either saving it or knocking out these existing debts. (while reeling in our spending)

DH is expecting a $4k+ bonus in September too - should we use it for debt or save it? I feel like we never have savings and it stresses me at times.

You hit the nail on the head when you said you need to make better use of the 2K. Start writing down exactly where this money is going and from there try to make cuts on the spending. If you use half of it to pay down debt and the other have to save, then you can accomplish both goals. Pay off the debts in fairly short order and start to build up a comfortable cash reserve.

[ktmarvels]

In terms of saving for "stuff" (trips, new car, etc), I have "separate" savings accounts. In reality I have one savings account, but I use an excel spread sheet to keep track of each sub-account. Then each month I put a certain amount toward each category. For example when we paid off our car loans, I kept making most of the payment to that account, so I add about $250 per month to that category. Since that was money that had been allocated previously, it was an easy transition from making a car payment every month to saving for repairs/new car every month. We put approximately 50-100 toward travel each month which we use to travel home for the holidays and other trips. We also have our emergency fund in that same account, with it's own spreadsheet column. I like it because if I need to transfer money out of our savings account into checking, I have to make a consious decision how I am going to record that in my spreadsheet. Is that coming out of our travel fund, house fund, or emergency fund. (Our house fund is primarily our slush fund, it gets all our extras, but I would be hesitant to take stuff out of our travel fund, and I have yet to touch our emergency fund!)

I do this in an excel worksheet that is set up like a checking account with multiple credit/debit and balance columns. That way I can say June 15, $15 here, $30 here, $200 here, total balance this. ING direct has this functionality within the website, I just haven't tried it.

Hope this helps.

[woodie96]

I would look at the interest rate of the CC that is currently 0%. I would assume that after 11/12 the interest will increase.
If the interest on that CC is low enough to justify paying the student loan or car loan, then I might lean that way.
To me, it would depend totally on what happens with the CC interrest after 11/12.

[wikiwiki]

The interest on that card will go above 10% (not sure of the exact %) so we do want to get rid of the balance asap. Once that's gone, I will most likley pay more towards the student loan while saving, and once that's gone, pay more towards the car while saving. Unless we use the bonus to knock out the student loan. It's over 12 years old and I'd like for it to just be gone.

Now to figure out how to spend less on food each month and still eat healthy!

Thanks for everyone's tips!

[snafu]

We all work hard for our money so it's important to use money as effectively as possible so I do my best to reduce/eliminate interest payments. Good on you for limiting CC spending to a 0 interest rate. My suggestion would be to pay about $1,083. each month to ensure it reduces to $ 0. by Nov. when interest would begin to accrue. That cost avoidance makes up for temporarily not adding to savings.

I challenge myself to reduce spending in a chosen category like food, clothing, gifts or entertainment and use those savings/cost avoidance sums to fund a 'want' or special project. There are tons of tiny cuts that seem ineffectual individually but huge overall by cooking from scratch [avoiding the poor nutrition of some convenience foods], non brand name foods where it doesn't matter, buying cleaning lotions/potions at a discount or Dollar type store, mindful driving that includes errands, DVDs and books from the library for example. Sums could be added to your 'savings' category if it makes you feel more secure. Concurrently work on lowering the sum owed on the student loan because again, you are are reducing the overall sum of interest.

Just keep focus on the goal, how great it will feel to divert the sums for debt to the new car or split with travel plans or whatever project heads to the top of the list.

[skydivingchic]

We don't "need" a car yet but it is 10 years old and over 100k so it's not going to last forever. So that is something on the horizon.

Yes, your vehicle won't last forever and you certainly need to plan on its replacement. But I would like to point out that my 1999 RAV is creeping up on 180,000 miles and going strong. I plan on getting at least 250k out of it. So you may well be able to delay a vehicle purchase for a bit longer.

How should we save for travel - we take little weekend trips here and there and will need to visit family this year - so I'd rather have cash to spend on that then to put in on an interest free cc like we've done before. But if we're trying to pay off debt how is that possible? Is there a recommended % somewhere for savings?

Yes, you should be saving for travel and not putting that on CCs. The best recommendation would be to skip a trip or two while you pay off debt and save for the next trip. Put it in a separate savings account, or keep track of your "mini savings" accounts on a spreadsheet as has been suggested.

Also-I know retirement is meant to be at least 10% which we have.

You mention saving 10% of your husband's salary for retirement, but say nothing about yours. Are you saving 10% of your gross pay as well? If not, you aren't saving 10% toward retirement.

[wikiwiki]

No I'm not saving 10% of mine to my 401k yet but that is a goal too. Should I do that now or wait until this cc is paid off? (Was planning on paying it off by September) We did just bump DH's to 11% and if/when he gets a raise this year, we will bump it to 12% or 13%. What is a good amount to have in a 401k at age 36? (DH's age)

What is a good "order of operations" - ie what is the most important thing to do with "extra" $

[josetann]

Does your company offer a 401k match? Are you maxing that out? That's the first thing I'd do.

Personally, I'd want more in an emergency fund. But...it sounds like you have more than $1,000 in savings. If you have $2,000 in a vacation fund, you COULD use that in an emergency, no? Then I wouldn't be quite so worried. But if you truly only have $1,000 saved for emergencies, I'd bump that up. That's just me.

What I might do, is put some in a Roth IRA. You can withdraw up to the principal amount with no penalty (i.e. if you put in $10,000, it's now worth $15,000, you can withdraw up to $10,000 with no penalties). Now, people will probably jump all over me and say that's bad advice, a Roth IRA is too unpredictable, you should have an emergency fund in a savings account. Well, a Roth IRA doesn't have to be in stocks; you could have a savings account with a paltry 1% interest rate and that'd be in your Roth IRA (complicated, but a Roth IRA is a container, you can put different investments in it such as a savings account, a CD, stocks, real estate [this one's extra tricky], etc.). Just a thought.

Edit: Oh, I'd pay off the student loan before the car. Credit card...I'd probably try to pay that off first, depending on what rate it'd adjust to (over 10%, definitely pay the card; under 10%, I'd probably throw money at the card and the student loan equally...yes, number wise that wouldn't be the best course, I understand that).

[wikiwiki]

My income is from contractor work I do so my company does not offer 401k match. We are above that for DH's company but I have not been contributing mine.

We do have $1k in emergency and ~$2k in other accounts if needed but I do want to bump up our emergency funds.

So--plan is to pay off $6500 cc in next 3-4 months
Then...
start saving 5% of my income to my 401k (it's a start! Will bump to 10% once car loan is gone)
pay down $5k student loan more aggressively - $500/month or more
put at least $200 into emergency each month
$100 to travel each month
once student loan is gone, send more towards the car loan.
if/when DH gets a raise in Sep, put 2% more towards his 401k, bringing it to 13%
DH Sept bonus (~$4k) - 1/2 to emergency, 1/2 to debt

Sound good? Thanks to everyone for the tips.