What to do with bonus

**riverwed070707** · 09-05-2013, 12:33 PM

Do you own or rent? Have kids? If you do have a mortgage and kids, I would do scenario 3. If neither of the above, I would do scenario 3 but apply the efund portion toward the car loan.

ETA - 2 things. 1) Why are your christmas and car fund the same thing and 2) why do you have a separate car repair category? Doesn't that just complicate things? I'd consider a broken car an emergency.

**KTP** · 09-05-2013, 01:50 PM

Get rid of the student loan. It is the only thing that is tied to your person and will follow you like a ball and chain through bad times.

Yours is not very big though so that is good.

**stoney508** · 09-05-2013, 02:03 PM

I would choose scenario 3 pay down your SL and CC increase your emergency fund but then I would add the payments to your car loan and knock that out as soon as possible before increasing your Roth contributions.

**kork13** · 09-05-2013, 05:03 PM

I'm mostly in agreement with the others... I would allocate it like this:

$3500 to Student Loan (gone)
$1400 to Credit Card (gone, and don't let it come back -- pay it off in full every month from here on out!)
$2500 to emergency fund (if your car breaks down, you should try to cash-flow the expense, or if necessary you can dip back into the emergency fund)

Looking past your bonus, I would take the payments from your student loan and credit card (guesstimating ~$200/mo total?) and split it between your retirement accounts (401k to the match, or Roth IRAs, at $100/mo for now, until your car loan is paid off) and your emergency fund ($100/mo). You need to build up your EF to be at least 3 months' worth of your expenses, though preferably 6 months of expenses. Also, does your husband have a 401k (or similar plan) at work that offers any contribution matching? If so, that should take priority over your Roth IRAs, at least to the point of the match offered by his employer. I like the idea of raising your car loan payment, so keep at it.

But the "Christmas fund" raises an eyebrow... I'm not trying to be Mr. Grinch here, but many families tend to overdo it with Christmas gifts & other holiday spending. If you have concerns about your debts & overall financial situation, spending a couple thousand dollars on the holidays may not really be a great idea.

Looking more broadly, are these your only debts? And what does your overall budget look like? Would it be possible to reduce your expenses elsewhere in order to allow you to put more toward your retirement? If you'd like to post some more information (age, income, other debts, assets, monthly expenses, goals, etc.), we can give some more specific advice for the "full picture."

**wikiwiki** · 09-05-2013, 05:17 PM

Thanks for the replies--

Christmas/Car fund is just a general fund i wanted to start so we aren't paying for Christmas in December/November, or paying out of pocket for any car repairs. It doesn't mean I'd spend $1000 on Christmas. But i suppose I could just stick any car repair funds in emergency?

DH is contributing 15% to his work 401k already. It's just the Roth that isnt fully funded for the year yet.

Only other debt is the mortgage and we are paying an extra payment each year for that.

Basically we are at a point where we are turning a corner and are able to save more now so I'm trying to figure out the best place for it. Long term retirement or liquid emergency funds first until that's at a good 3-6 mo amount?

**disneysteve** · 09-05-2013, 05:42 PM

Originally posted by wikiwiki View Post

DH is contributing 15% to his work 401k already. It's just the Roth that isnt fully funded for the year yet.

The typical advice is to fund the 401k enough to get the full company match, then max out the Roth, then return to the 401k if you still have money to be saved. The Roth is better than the 401k for lots of reasons (unless it is a Roth 401k and then the differences are not as significant).

**wikiwiki** · 09-06-2013, 04:28 AM

Ok-Looking at it more closely, I had my % wrong. DH has 9% going to his 401k. (also getting the 3% match from employer) And also contributing 5% a month to a separate Roth IRA.

So... what is a good priority list for us?

1.credit card
2. student loan
3. emergency
4. roth

?

**emanon1501** · 09-06-2013, 04:36 AM

SL and CC is a MUST as both will be gone! After that, its all up to you. In fact, I would take small part of it and have fun with your family. Its a bonus, a thank you for your hard work. Use some of it and enjoy it.

Also, I would not make extra payments to mortgage at this time. Use the extra payments to the car loan and EF. Mortgage has tax advantage, so why put some in that when you have more priorities.

My 2 cents.

**TBH** · 09-06-2013, 05:42 AM

I like what emanon said about using a little of the bonus to do something nice for yourselves. Therefore I'd say you're on the right track to put something aside for xmas.

What if you did this:

$3500 to student loan to get rid of it (frees up $150/mo)
$1400 to cc
$500 to xmas fund
$2000 to emergency

And I think if you're already putting 9% plus match into the 401k, you should not put the freed-up monthly cash-flow toward retirement until you've knocked out the car loan and beefed up your emergency fund.

So I'd probably put the freed-up money from the student loan and the credit card payment toward your emergency fund til you have 3 months, then I'd throw those extra payments at the car loan, and when that's gone I'd go back and finish building the emergency fund to 6 months. After that, I'd probably keep putting some of that money aside for a new-car fund because you do NOT want to take out a car loan or wipe out your emergency fund the next time you need a car. At that point, in addition to saving for your next car, I'd start working to max out the Roths.

We don't know your ages, your income, or your current levels of retirement savings. But without knowing more, that's what I'd recommend. And also I want to say congratulations. Right now you're in a tenuous spot--you still have very little emergency savings and a fair amount of debt. But it sounds like you're working hard to change that and in a couple years you'll probably be in a very different situation, with no debt and a good cash cushion and the ability to focus on long-term savings goals.

**bjl584** · 09-06-2013, 05:46 AM

I agree with the others. Wipe out the SL and the CC debt. Then save the rest in the EF. Wiping out the 2 debts will give you a bit more cash flow to fund your ROTH IRA's with and/or pay off the car earlier.

**feh** · 09-06-2013, 05:54 AM

I'm surprised at the replies - don't people usually say the top priority is to have a sufficient EF?

**bjl584** · 09-06-2013, 06:41 AM

Originally posted by feh View Post

I'm surprised at the replies - don't people usually say the top priority is to have a sufficient EF?

OP has their $1000 "Dave Ramsey Minimum EF", so I think wiping out the debts will serve them better. Besides, paying off the SL and CC will leave $2500 for the EF bring the total to $3500. I don't know what that represents in terms of OP's spending, but $3500 is a decent cushion that they can build on going forward.

**kork13** · 09-06-2013, 06:46 AM

Originally posted by bjl584 View Post

OP has their $1000 "Dave Ramsey Minimum EF", so I think wiping out the debts will serve them better. Besides, paying off the SL and CC will leave $2500 for the EF bring the total to $3500. I don't know what that represents in terms of OP's spending, but $3500 is a decent cushion that they can build on going forward.

Exactly... We're still prioritizing OP's emergency fund, but by eliminating debts, there are fewer expenses to cover, and the monthly payments can be directed to EF. I don't think anyone is saying that a $3500 EF is "sufficient," but it's a safe place from which to start saving up toward a full EF.

**JoeP** · 09-06-2013, 07:14 AM

Originally posted by bjl584 View Post

I agree with the others. Wipe out the SL and the CC debt. Then save the rest in the EF. Wiping out the 2 debts will give you a bit more cash flow to fund your ROTH IRA's with and/or pay off the car earlier.

I'd do this and focus the remaining and feed-up money on the car debt. Once that car is paid off, make yourself a promise that you will avoid CC debt, build up your EF, and budget for your next car so you will have a much lower loan next time.

What to do with bonus