Hellobee Boards

A lot would depend on debt interest rates but my priority is:

Save up small cushion of 1-3 months savings

Credit cards

Next steps would depend on tons of factors: interest rates on other loans, job stability, any anticipated large purchases to make in the next year, credit scores, etc.

Same as above. Cushion, pay off high interest debt (we don't carry any now though), save, if extra, pay off car loans or mortgage, last student loans but they are low interest and priority.

We have never carried a balance on credit cards, but we do have substantial student loans.

My uncle/financial advisor basically instructed us to pay attention to interest rates. Our car loans and our mortgage have very low interest rates, and so we make more money by putting out money into a brokerage account than we would save by paying the loans down rapidly.

We have prioritized saving because we are hoping to move/build a dream house within the next 6 years. That kind of thing can't wait because it is about the lifestyle we want for our kids (more land, etc.). Given that, we are NOT being super aggressive with paying down our student loans (which do carry a slightly higher interest rate than we could earn by saving). We consistently make our monthly payments on those, and try to throw some extra at it annually. They aren't private loans- but they are at around 7% so not great.

We did recently decide to try to pay off our cheapest car loan more quickly, with the plan of then using that money to pay down our other car loan more quickly, and then hopefully having a few years where all that money can go to student loans before we take out another car loan.

We have always kept a pretty decent amount in savings (most of that was moved over to the brokerage account which I never touch beyond the auto deposits). I also did out a budget and set aside a certain amount each month for big annual expenses (buying wood for our woodstove, heating costs in the winter, Christmas, property taxes). If we can pay for the expenses out of our checking, great, but if not I know I've been planning for it and we just move it over from the savings.

I wanted to add that we are pretty privileged and it was not always this easy to figure out how to split things up. I'm not saying that to brag, but rather to acknowledge that it is a lot easier for us than it is for most other people to figure out this balance.

We are not people who are hoping to retire early, so while we are saving for retirement and our kids college accounts, the house (and the life we want our family to have while our children are young) have been our primary financial focus.

@DesertDreams88: Yeah, I can see your struggle there, especially with a family to take care of. I know I have heard him advise people to buckle down and tackle the debt first, but I would probably feel anxious without a bigger emergency fund too. I would maybe do a 1 month emergency fund and then tackle the debt as fast as possible if it was me, but you have to do what makes the most sense for your family.

Saving is a priority to me, especially when talking about investing in retirement funds. My student loans are at 7% and is the highest interest rate. I've just gotten in the mindset that they're there to stay for the long haul and the extra $ will work more for me in a 401k than it would paying extra on them. I have some CC debt, but it's either 0% or 3.5% so not a big priority over saving either. I don't feel comfortable with less than 9-12 months emergency funds saved because
DH has had some long term unemployment in the last and we would have been screwed without that cushion of savings.

@DesertDreams88: my student loans are at about 3%. Unless the interest rate for your student loans is high, I'd get your savings to a place where you are comfortable before aggressively paying off student loans. Part of that is psychological - I'd rather pay a bit more interest in the long term than be stressed for X number of years because I'm nervous about savings.

ETA: I would also make saving for retirement a priority. Saving early, even if it's only a little bit, makes a huge difference. I didn't factor that into my initial response because I've always just had as much as I could afford taken directly out of my paycheck, which in the beginning, was not much at all.

Generally, we don't carry a cc balance, and we only have our mortgage for debt: but other than paying the regular mortgage payment we would keep money in savings. We aren't really trying to pay our mortgage early at this point because we are mostly on one income. ETA, I guess I should have included retirement, so it goes: pay mortgage and retirement, pay cc if we have any, put money in kids savings, and then our savings. But we're basically at zero savings right now as far as our savings acct goes (not adding to it.)

There was a time when we thought we could pay off the mortgage early. Then life got in the way I don't actually think that's possible at this point, so we've stopped trying. We automatically put away money each month for emergency, savings, retirement. But stopped aggressively paying off the mortgage. We also have student loans we're still paying off, but the rates are pretty low. Our savings right now looks pretty grim - we're renovating

Ours all basically comes down to percentages.

Will I earn MORE by saving (investing) than the interest rates of my debt? Then I'll prioritizing saving. Are the interest rates higher than my potential earnings from saving? Then I'll pay off debt.

Credit Cards: These are higher interest rates, so we pay them off immediately
Car Loan: Low interest rate - pay monthly amount
Mortgage: Low interest rate - pay monthly amount
Student Loans: Low interest rate - pay monthly amount

@DesertDreams88: Oh, I assumed from your initial post that you had CC debt. If you don’t, that’s awesome!! I agree with you that I would generally personally consider anything under 4.5% to be “low interest”; though others might have other figures they are comfortable with. I also agree with you that I wouldn’t be comfortable with having only $1k in savings and nothing else. That’s just not enough. For me, I would feel more comfortable with 3 months living expenses (minimum) in savings and then to curtail savings in favor of cutting debt. I’m not a fan of saving just to save when you have debt, especially higher interest debt out there.

For me/us; my federal student loans are the fixed 6.8%, my private ones are all below 3%, our mortgage is 2.75% and my car is 0.9%. Obviously I’m paying off the federal student loans first. The rest, meh, I’m not in a big rush to pay off early.

We charge everything to our credit cards but pay them off each month. If we had cc debt that would be the first to go as the interest rate is usually crazy high. I agree with you that I'm not comfortable only having $1K in savings.

What we do is we have $1K in our normal checking account so that we have easy access to it. The rest of our emergency fund is in a higher interest savings account. We use Ally...they don't have physical branches so if we ever needed access to that money it would take a few days. We each contribute to our 401(k)s and our other debt (car, mortgage, student loans) isn't high interest so we don't go out of our way to pay those off early. I'm also on team anti-Dave Ramsey.

So I'm not super financial savvy, and others above gave really good advice too; I'll just add to what we do with our modest income.

I care most about an emergency fund. Esp now with 2 kids, it's just too big of a risk to not have a cushion in case something happens. And like others have said, as long as whatever debt I have has low/no interest, then I'd just pay a monthly payment until I feel like I have a chunk of extra money to pay something off (ex. paying a car payment then using tax return to pay off balance or something).

We're in a season where we don't have debt besides our house, but since we have 2 in daycare, we're barely saving so it's super important to me that I already built up that emergency fund.

We are Dave Ramsey followers. As much as he hates it, we did tweak it a little for ourselves- so technically we followed our own plan which we based off Dave Ramsey's plan. We no longer have consumer debt, only our mortgage left. But this is what we did:

We kept a small emergency fund- around $2,000. But we also had our 2 son's savings we could use if times got too rough (about another $1,000). We were also paying off over $3,000 in debt a month, so if we skipped one month of doing that we had well over $6,000.

We did not stop 401K contributions, but we did decrease them to just enough to maximize our company match.

Pay off all debt, smallest to largest. For us it just so happened that our smallest debt, the camper at $8,000 was our highest rate of 4.5%. Then the car at $15,000 was 2.5%, and the student loans of $80,000 was 1.74%. So it was also highest interest to smallest interest. We accomplished this in 2 years 4 months.

Increased our 401K contributions- 15% for my husband, max allowed ($18,000/year this year) for mine. We will be increasing both to max for next year.

Increase savings to 3-6 months of expenses.

Now we are attacking our mortgage. We pay off a minimum of $3,000 a month in principle. We have a goal to have it payed off by the end of 2020.

Throughout all of this we have stocked away 1% of our income toward college for each of our boys. This will give them a good starting amount for college and we will be in a very good financial position to cash flow the rest.

Thoughts on small emergency funds: We both earn a good income and are a dual income family with very stable jobs. We would be able to survive on either one of our incomes if something happened to one of us or one of use got laid off. Having a small emergency fund gave us motivation to cut deeper and pay off debt more aggressively, but also didn't scare us too much because we knew we were in a fairly stable position to handle what life threw at us.

@petitenoisette: A quote from Dave Ramsey's website: "30 year mortgages are for people who enjoy slavery so much they want to extend it for 15 more years and pay thousands of dollars more for the privledge". Let's ignore the fact that joking about slavery is incredibly poor taste. This statement can absolutely be wrong for someone who is INVESTING their money. I did the math using an expected rate of return I was comfortable with and even with the slightly higher interest rate I was better off doing a 30 year mortgage and investing my extra money than doing a 15 year mortgage. But Dave doesn't believe in math. And don't worry, at the end of this article there was a link to Dave's endorsed realtors who I'm sure pay him a pretty penny to be included on that list. Dave Ramsey, in my opinion, preys on people's financial inexperience and religious convictions to make millions of dollars for himself. I recognize that I'm not the target Dave Ramsey demographic, but I am a financial professional and in my opinion math works the same no matter what your financial situation is. And the last thing people on a tight budget need to be doing is paying for advice that doesn't actually save them money in the long run. I believe people can (and should!) be motivated enough by saving/making the most money for their families that they don't need to trick themselves into psychological wins.

So, as you can see, you're going to get a lot of difference opinions on this. Personally, we are modified Dave Ramsey users. How you decide to prioritize savings and debt really depends on your personality. If you feel fine holding debt in order to win over time in investing, then that's fine. If you just want to get rid of debt and not have it hang over your head, then prioritize the debt.

We don't keep a huge emergency fund while we are paying back the rest of our student loans. $1000 emergency fund can seem thin, especially if you have kids. Generally, how DH and I have dealt with this is we try to keep enough cash to cover whatever would be a "major" event at that point in our lives. This is always a shifting target - for example, when we first got married, the biggest thing would be something going wrong with our car. Since it was a 4WD Jeep Grand Cherokee, we knew if something seriously went wrong, we were looking at about a $2500 repair. So that's what we kept as the cushion.

Now with 2 kids and a house, the math changes on that somewhat. We have very low maintenance cars now, but our major expense would be a big home repair. So we have set aside for that, but also try to mitigate by being diligent in our home maintenance and budget for small repairs/updates each year.

Then there's risk management. Depending on the stability of your job(s), the nature of your employment, etc. it might be advisable to have a bigger savings cushion, but I think generally a bare bones 3 month savings would be plenty for people in a decent job market.

We both have extremely-to-fairly stable employment, so we hedge a lot of risk through insurance. We both have good long-term disability insurance, we have short-term disability insurance, and we both have sizeable term life insurance policies. The rates are really affordable the younger you are when you get the policies.

While we are paying off our loans, we are still contributing to our retirement. I have a pension, so its not really an option not to contribute. DH's employer gives a HUGE match, so we max that out.

We also contribute a modest amount to our kids' college savings. We will bump that up once we're done paying off our own loans (which is hugely motivating). We also encourage contributions as gifts from family members (they have largely obliged). But we aren't huge fans of 529s in general and expect to be able to cash flow quite a bit at the point the kids are in school, so there's also that.

We conservatively calculate an FSA amount for copays and prescriptions and max out the childcare FSA each year to take advantage of that, since those will be for sure costs. Same thing, we save for predictable expenses, like holiday gifts, family travel, and vacation through budgeting.

But otherwise, yeah, its trying to stay disciplined in our living expenses and throwing what we can at the student loan for now.

@looch: Yes, great point. We have outstanding health insurance through my job that doesn't have a deductible and very low co-pays, but if I didn't, I'd definitely plan to save for a medical event in concert with an FSA.

For us, we are currently in the most expensive stage of life...in theory. Two kids in FT daycare, DH still has decent student loans and we are in our "forever" home. Once we re-financed after sinking tons of cash into our home we made the following plan:

1) Paid off DH's highest % loans, now his payment is managable and no loans are over 7%
2) Build Savings - we have 3 months covered
2) CC paid off

At that point we assessed how much we were comfortable saving vs investing.

We made the decision to just get as tight as we can with our budget...teach ourselves how to live within our means at our most expensive time. We refi'd to a 15 year mortgage to get our rate below 3% (barely ), I max out my 401K and DH contributes to his such that he gets the most max from his employer he can.

And thats it for now. We have specific plans for as our big items drop off (i.e. DD1 daycare next year, DD2 daycare and student loans in 2020). That will collectively be a roughly 4K swing in our cash flow.

Would I like to save more, yes. But in reality DH and I are both in stable jobs and careers where we should be able to find something. Plus we have plenty of space on our credit cards if the unthinkable happened.

We have plans in place with out advisors for when our cash flow changes - but it wont involve just cash in the bank. In terms of a boring old savings account ours will always be minimal - as we'll be placing our money elsewhere.