Budget/ Debt Paydown Strategy

[fosho]

I've been reading this site along with others for a little while and finally decided to ask my own question regarding my financial situation.

Me and my wife currently have a net income of about 5400 (96k gross annually). This is after taxes, retirement funding, and medical insurances. I also have bonus opportunity, but I don't count on until it actually hits.

Savings: $9500
My retirement plan so far: 6% 401k with 3.5% match, $200 a month into Roth IRA.
School Loans:
$3011 @ 2.39%
$13986 @ 6.8%
$15813 @ 5.39%


Our budget is as follows:
Phone: 140
Car + Condo insurance: 90
School Loan: 380
Food + Paper products: 400
Mortgage + Tax: 1250
HOA: 600 (includes insurance master policy insurance, water, cable, internet, sewage, and internet)
Electricity(varies but i use a high estimate: 250
Individual spending money: 400 (200 each) covers clothes, shoes, lunch, etc.
Gas: $50

This brings our total outgoing budget to around 3560.

We own two paid off cars that aren't driven a whole lot since we take public transportation to work currently.
At the moment we are trying to figure out the best move from here. I was thinking about accelerating the school loans starting with the 6.8% one, but also wondered if our emergency fund needed some improvement. I also want to get my wife started in a 401k/IRA plan as well as she is not currently contributing much at all.

Just in case I am missing something in the budget ill say we have $1600 a month to go towards a goal. In case your wondering I am 23 and my wife is 25. Any thoughts?

[bjl584]

How much do you currently have in your emergency fund? Standard rule of thumb is to have 3 to 6 months expenses saved, so that would be between $10,680 and $21,360.

[fosho]

Well we currently we have $9500 in family savings so this is what we consider as our emergency funds. We each have personal savings of about $1000 each. So not too far away from the 3 month milestone.

[disneysteve]

I think you have plenty in your EF for now. I'd be attacking the high interest debt.

[Max G]

I think you are in a pretty good shape so far. The emergency amount is fairly sufficient for now since at 25 you're going to have less "emergencies" than at 75. I would try to pay off loans first. These days it's hard to make 6.5% guarantee on your savings so paying down debt is a best way to go.

[asapcc]

Definitely paydown your highest interest rate loan first. The one at 6.8% is costing you the most. But personally, I wouldn't worry about low rate one at 2.39%. You could easily make more than this with some relatively conservative investments. The one at 5.39% isn't that bad either, so that one's a toss-up -- you could either pay it down or make some investments instead.

Either way, I would definitely try to knockout the 6.8% loan right away...

[jpg7n16]

I would leave the EF as is, double the Roth contribution amount (to $400/month), and pay any extra towards the 6.8% loan.

Once it's paid off, I would double the Roth contributions again (to $800/month), and pay any extra to the 5.39% loan.


Once that one's paid off, max the Roths (you'll be close enough anyways) and start thinking through if there were other goals you wanted beyond retirement savings.

[fosho]

Thanks everyone for the advice.

I would leave the EF as is, double the Roth contribution amount (to $400/month), and pay any extra towards the 6.8% loan.

Once it's paid off, I would double the Roth contributions again (to $800/month), and pay any extra to the 5.39% loan.


Once that one's paid off, max the Roths (you'll be close enough anyways) and start thinking through if there were other goals you wanted beyond retirement savings.

I'm guessing your assuming that me and my wife both currently have Roths? I thought the limit was 5k a year. If so your advising that she also get a Roth and begin putting $200 a month into it? I believe shes not even close hitting the match with her current company's 401k should we first get that set up?

[Petunia 100]

Thanks everyone for the advice.





I'm guessing your assuming that me and my wife both currently have Roths? I thought the limit was 5k a year. If so your advising that she also get a Roth and begin putting $200 a month into it? I believe shes not even close hitting the match with her current company's 401k should we first get that set up?

Absolutely. Contributing enough to receive your full match is the highest priority. That match is a guaranteed return of 100% (or 50%, or whatever your particular match might be) on your money. Never pass that up.

[jpg7n16]

I'm guessing your assuming that me and my wife both currently have Roths? I thought the limit was 5k a year. If so your advising that she also get a Roth and begin putting $200 a month into it? I believe shes not even close hitting the match with her current company's 401k should we first get that set up?

I'm assuming that because you certainly can each have a Roth. Each of you gets $5k (total $10k). This is separate from and in addition to the limits on your 401k.


And I would definitely take the employer match first. I thought from what you said in your original post (6% with match of 3.5%) that you were already doing more than the match. Change that today.

If there's free money out there, take it


And then depending on how much that leaves you left over each month, I probably still stick to what I said above.

[fosho]

I'm assuming that because you certainly can each have a Roth. Each of you gets $5k (total $10k). This is separate from and in addition to the limits on your 401k.


And I would definitely take the employer match first. I thought from what you said in your original post (6% with match of 3.5%) that you were already doing more than the match. Change that today.

If there's free money out there, take it


And then depending on how much that leaves you left over each month, I probably still stick to what I said above.

Yeah all of the retirement info I gave in the first post was only my retirement info which was a 401k match and 200 into roth. I am trying to get hers set up now, since she really hasn't paid much attention to it up until this point.

So it seems as if I am going to get her to raise her 401k contributions to get her max match as well as paying down the 6.8% loan.

Thanks again.