We're almost caught up...Now what?

[guppy]

After all bills are paid my husband and I have an additional 1,500 per month. Up until this point we've been using this money to pay off credit cards, car loans, student loans, etc. We still have a 3,500 loan to my mother but after that aside from having another child (approx 500/mo for daycare) we'll finally be able to figure out what best to do with the balance after we fully fund an emergency fund.

Our retirement contributions are roughly 9% (husband) and 13% (me). I may increase our contributions but now that I'm adding in money from my pension (which previously I wasnt) it looks like we're on par with where we should be (roughly 1x income at age 30).

1500 extra
-500 possible kid #2 daycare
_____
1,000 extra

What would you do with an extra 1,000 a month? How much disposable income do you usually have after all bills/expenses are paid? I'm thinking about paying off our rental property or paying down our mortgage. Our mortgage only has 10.5 years remaining though so I'm not sure if I should start investing instead?

[Eagle]

After all bills are paid my husband and I have an additional 1,500 per month. Up until this point we've been using this money to pay off credit cards, car loans, student loans, etc. We still have a 3,500 loan to my mother but after that aside from having another child (approx 500/mo for daycare) we'll finally be able to figure out what best to do with the balance after we fully fund an emergency fund.

Our retirement contributions are roughly 9% (husband) and 13% (me). I may increase our contributions but now that I'm adding in money from my pension (which previously I wasnt) it looks like we're on par with where we should be (roughly 1x income at age 30).

1500 extra
-500 possible kid #2 daycare
_____
1,000 extra

What would you do with an extra 1,000 a month? How much disposable income do you usually have after all bills/expenses are paid? I'm thinking about paying off our rental property or paying down our mortgage. Our mortgage only has 10.5 years remaining though so I'm not sure if I should start investing instead?

To get a better picture of your situation perhaps you could provide a little more information...

1. What is your monthly income?

2. What are your monthly expenses?

3. What are the balances in your investment funds?

4. How many months of an emergency fund do you guys have?

5. Do you and your husband have Roth IRA's?

6. What are your debts? You listed a personal loan to parents, a mortgage, and a rental property...

7. Do you guys have any money saved up for kids college?

[guppy]

To get a better picture of your situation perhaps you could provide a little more information...

1. What is your monthly income?
Net 6500

2. What are your monthly expenses?
5000

3. What are the balances in your investment funds?
40k in 401k, 10k in deferred comp (403b), 25k my contribution to pension, 25k my employers contribution to pension

4. How many months of an emergency fund do you guys have?
Only 2k since we've been paying things off

5. Do you and your husband have Roth IRA's?
I have one open but have barely contributed.

6. What are your debts? You listed a personal loan to parents, a mortgage, and a rental property...
$3,500 loan from my mom, 93k on a rental property, 132k mortgage on our house, and finally nothing else!

7. Do you guys have any money saved up for kids college?
Approx 1k. I contribute 25 per month to my 3 yr olds college fund.

Thanks so much for responding!

[Eagle]

Thanks so much for responding!

Sure! Congrats on knocking out your consumer debt! Looks like you’re doing great!

Follow-up questions:

6a. What are the interest rates on the two mortgages (rental and home)?

8. When was the last time your family took a vacation? After all sounds like you guys could use a break.

9. Do your employers match your 401k and 403b respectively?

*E-fund
Based on what you’ve shared Guppy I’d suggest increasing your emergency fund first. I’d get your emergency fund to 3-6 months (15k-30k) of monthly expenses. Having only 2k in the bank makes me nervous. The reason I’d do that is I wouldn’t want to have to use in a pinch a credit card or take out another loan from a family member.

*Debts
Depending on what the interest rates are on your mortgages I’d say knock out the personal loan next. Owing money to family can become sticky.

*Investments
The next priority I would say would be to invest for retirement.

A. Contribute to 401k (or 403b) up to employee match.
B. Max out Roth IRA/IRA depending on your income.
C. Max out 401k.
D. Then if you still have leftover invest in taxable investing (preferably low cost index mutual funds).

*What I'd do
For now (without knowing the interest rates on your mortgages), if I had $1000 extra in my budget I’d put $500 towards my e-fund, $300 towards personal loan, $100 towards my ROTH IRA, and $100 towards a vacation fund.

[feh]

Max out your tax-advantaged retirement accounts (401K, IRA).

[bigdaddybus]

What would you do with an extra 1,000 a month? How much disposable income do you usually have after all bills/expenses are paid? I'm thinking about paying off our rental property or paying down our mortgage. Our mortgage only has 10.5 years remaining though so I'm not sure if I should start investing instead?

I think what eagle suggested sounds like a good plan. If I changed anything I would pay the personal loan first (as that would make me uncomfortable with my family)

We usually have about 25% of our net income left after or bills are paid and retirement contributions are made.

I am the type of person that takes comfort in "money in the bank" vs "owning my home" . I would invest vs paying down mortgages, considering my mortgage is 3.75% and my investments do much better than that.

Congrats on your accomplishments, and make sure you take time to celebrate a bit too!

[TBH]

Great job!

I think your priorities should be in this order:

* pay off personal loan
* save up til you have 3 months E fund ($15,000)
* after that, split excess between your E fund (til it's up to 6 months, or $30,000) and your retirement accounts.
* once you have a 6 month E fund and you're both regularly contributing 15% to retirement accounts, I'd increase your 529 contributions and pay down your mortgages.

And I agree with others that somewhere in there you should save up some money to do something nice for yourselves. You deserve it and now that you're out of debt, you can afford it.

[snafu]

guppy, congratulations on clearing consumer debt, good on you. Since you asked the question, I suggest some easy to read books like The Automatic Millionaire [David Bach] or The Wealthy Barber [Chilton...updated version] which are likely available as an e-reader from your library or any of the used, on-line booksellers like Better World Books.com.

[guppy]

Thanks for all the responses. This has been a long time in the making so it's exciting to finally be out from under the weight of all these loans. I'm hoping to have the 3,500 paid off by the end of the June. I've talked with my husband and we're then going to save for our family vacation to the shore and then start saving for windows (to reduce those darn electric bills for winter!). All while trying to build up the EF of course.

Thanks again!

[riverwed070707]

To be clear, are you pregnant now or just planning for another? In your second post you said "possible daycare" and that kind of gave me pause as to whether it was an immediate expense (also you're lucky to have such cheap daycare!). If you are just planning ofr another, I'd definitely be budgeting that additional $500 toward other things in the meantime even though the funds may need to be reallocated down the road.

[guppy]

RiverWed - Nope, not pregnant now, but at some point I may be. Thankfully my mother helps out with daycare so I only have to pay for 3 days a week instead of full-time care. 40 bucks a day adds up fast, but I have heard some horror stories from friends so I'm thankful I have my mom who is able to help out as much as she does.

[Weird Tolkienish Figure]

After all bills are paid my husband and I have an additional 1,500 per month. Up until this point we've been using this money to pay off credit cards, car loans, student loans, etc. We still have a 3,500 loan to my mother but after that aside from having another child (approx 500/mo for daycare) we'll finally be able to figure out what best to do with the balance after we fully fund an emergency fund.

Our retirement contributions are roughly 9% (husband) and 13% (me). I may increase our contributions but now that I'm adding in money from my pension (which previously I wasnt) it looks like we're on par with where we should be (roughly 1x income at age 30).

1500 extra
-500 possible kid #2 daycare
_____
1,000 extra

What would you do with an extra 1,000 a month? How much disposable income do you usually have after all bills/expenses are paid? I'm thinking about paying off our rental property or paying down our mortgage. Our mortgage only has 10.5 years remaining though so I'm not sure if I should start investing instead?

What are your goals? There's no standard boilerplate answer for this. Getting out of debt is a actually easier than figuring this out, IMO. Getting out of debt involves discipline and mathematics, which is relatively easy stuff. This is your life, you won't get another one. If your goal is earlier retirement then pick a date and do the math. If you have other goals, then we'll go from there.

[JoeP]

If you haven't already, get a few insurance quotes on your house and car. With a mortgage and child, you'll both want some TERM life insurance if you don't have any already.

As far as going forward with extra money after filling your EF: Do you plan to move any time soon? When you are ready to buy your next car (a used car you'll pay for with cash) will you have enough money saved up? Do you have any household projects or improvements that fall outside an emergency such as a new roof, an addition, or a kitchen/bath remodel?

All these will require budgeting if you want to avoid more debt and you wish to leave your EF intact. An easy way to do this is to have your employer automatically deposit some of your pay into separate physical accounts that serve as "envelopes" with specific purposes.

[snafu]

Mid year June is a good point to create a Net Worth statement to compare your progress since January 1st. Lots of examples on the 'Blog' section of SA. [Add credits & subtract debts] Review home and auto insurances for adequate coverage, competitive premiums. If you use one agency, check that you are getting a discount.

When you review spending categories think about possible reductions without noticeably affecting lifestyle. For example a simple menu plan of five meals you like, can translate into significant savings compared with eat-out/takeout and will be much healthier. Using on-line Gas Buddy has potential to reduce vehicle operation costs as can errand planning. I found major savings in changing how I did laundry when I learned the dryer is a very expensive appliance to operate. Also, according to experts, only sheets and towels benefit from hot water wash. Clothes last longer, colors stay fresh using cold water and cheaper. Home made detergent costs pennies, better for environment and does a better job than Tide...much to my surprise.

[Eagle]

What are your goals? There's no standard boilerplate answer for this. Getting out of debt is a actually easier than figuring this out, IMO. Getting out of debt involves discipline and mathematics, which is relatively easy stuff. This is your life, you won't get another one. If your goal is earlier retirement then pick a date and do the math. If you have other goals, then we'll go from there.

Guppy I agree with Weird Tolkienish Figure...

Guppy consider too this post too on ways to get out and stay out of debt. You are pretty much on your way but it’s still useful information.


After considering your budget, tracking your expenses (try www.mint.com ), and cutting excess expenses (JoeP's suggestion of getting car insurance quote and Snafu's planning meals are a good start) you should consider:


B. What are your life goals and long-term objectives?


Consider too making your goals specific, measurable, attainable, realistic, and time-bound or SMART.


B. What personal finance books and/or investment books have you been reading recently?

C. Do you have term life insurance? Does your spouse?