For the majority of time I’ve been writing on my little slice of the Internet, I’ve been desperate to find a job. I couldn’t adequately comprehend paying off my massive loans without finding a steady, decent paying job.
Luckily, the universe gave me a break and I have reached my biggest goal of the year, which was finding full time work. I’ve been there less than a month, and I won’t feel fully secure until the 90-day intro period is up. But I’m feeling pretty good about the direction everything is going and I have faith in myself that things will continue to get better.
Now that I have reached my ultimate goal this year, and probably celebrated that fact a little too much (my May budget died a slow death), it’s time to get back to business. I want to pay off debt and have this gone as soon as possible. Although, I’ll be able to pay more towards more debt, my debt payoff timeline won’t change. If you go back and read my first post, I state that paying off my debt with my current income is impossible. Now it is possible, instead of just a dream! But I still have years to go….(uggggggggh)
I want to be a well-rounded, financially fit person. I have money to cover six months of bare necessities in an Emergency Fund. I put $150 in savings each month that I don’t touch. I have roughly 1k in my retirement fund that I started in grad school and stopped after I graduated and couldn’t find a job (I cannot wait to replenish savings and build up retirement once I am debt free!).
What’s next for me? I could throw all my money at debt, including my savings, but I start to feel physically uncomfortable with anything less than 1k in my checking.
Should I:
A) Stop saving and throw everything towards debt
B) Keep paying off debt, keep saving and start saving for retirement
C) Pay off debt and save for retirement
D) None of the above. Insert better answer _____________
What do you think? I want your opinions and expertise!
Do or Debt 
I would do a little of all of those things. Split your money up into each of those categories….that way all of your bases are covered.
Good idea!
Maybe just reduce the amount you put towards savings? Your emergency fund seems like it has a decent amount in it, maybe you can throw more towards debt and retirement?
I’m thinking of stopping savings, putting a low amount in retirement and put as much towards debt.
I am leaning towards “B”. But change up the percentages once you get to a comfortable amount in your savings. So in the beginning it might be 50% towards debt, 40% towards savings/emergency fund and 10% towards retirement until you get to a savings amount that you makes sense to you. Once you get to $X, then change the percentage spent in each category.
Yeah, I’d love to have a little more in savings and put the majority towards debt. 10% towards retirement sounds good.
I’d vote for B. Personally, I try to keep a month’s worth of expenses in the checking account at all times and gradually build up the savings I need for my winter “sabbatical” each year. I do that while putting a but towards retirement and tossing most of it at my debt.
That might be the most reasonable option!
I’d say keep enough in your savings account where you feel comfortable for covering necessities and a possible emergency, then when that’s in place pay off your debt. The one caveat is if your retirement will earn you more interest then what your debt is interest wise. In most cases it’s best to pay off debt, then do retirement.
Yeah, once I can put 1k + towards retirement instead of debt I will feel good!
I lean more towards B, but perhaps more emphasis on the debt (like an 80/10/10 split, something like that). Yay for having options! 🙂
80/10/10 is looking pretty good 😉 Will have to look at my finances and dissect the numbers.
I’d say it depends on the interest rate you’re paying on top of your principal sum. If it’s interest free (for example, my credit card debt is interest free until July next year as I transferred balance to a new interest free card) I would put a bit aside and add to my emergency fund. However, if you’re paying interest on top of your principal, I would put as much as I possibly can towards my debt as I really hate the idea paying any interest charges!! I personally do not have emergency fund as I prefer to put every single penny I can spare towards debt (whether it’s interest free or not).
Interest is 7.9%, so it is outrageous and annoying! Which is why I NEED my debt to be gone asap.
I am leaning towards “C” because you have a fairly substantial savings account already. Or, “B” but increase the amount your using to pay off debt and save a little less. Either way, I think that you’re going to find a formula that is comfortable for you soon. Congratulations on the new job!
Thanks! I’m thinking of spending 80% on debt, 10% on savings and 10% on retirement.
Dave says: 1) $1000 emergency fund, 2) pay all non-mortgage debt, 3) 3-6 month emergency fund, 4) retirement saving. That is what I’m doing and it works for me, but I might adjust it to front load some more savings if you had some reason to doubt your job security or had some looming expenses on the horizon. Otherwise, get rid of that monkey on your back, ASAP! All good notions though!
So A) I guess if I’m reading between the lines correctly. 😉
Thanks! I have no reason to question my job security….but as someone who was looking for a job for 2 years, I am cautious at best.
I think if you have a 6-month emergency fund tucked away for emergencies you should be okay to cover any unnecessary expenses. After that is covered. I would put a small percentage of your pay toward a retirement fund. Even if it’s 5% of your income, it will add up. Then the rest I would attack the debt! Good luck to you and Congrats on the new Job!!
Yeah, I’m not getting any younger! I wish I did start sooner with my retirement. *sigh* But when I split the amount I am putting towards debt, to savings and retirement, it will be great!
You already know how I feel about Emergency Funds 😛 They aren’t neccessary for me, but since you already have one with 6 months expenses, I would go with “C” and pay of debt like a beast while saving a little bit for retirement too. Maybe 90/10 🙂 I’m so happy for you and your new job lady!
It’s weird….I don’t really have that much money, it’s just that PDX is so cheap to live and my expenses aren’t that high. But 90/10 for debt/retirement is sounding pretty good too.
My opinion is that it doesn’t make sense to save while in debt. You’re rate of return on paying debt off is MUCH higher than putting money in savings. Personal choice, but I also don’t think 6 month ER fund while in debt is necessary. I think all efforts should go towards debt. Have some financial padding but I don’t think it’s the smartest move while trying to pay debt off. Paying debt off is also increasing your net worth… in a much better sense than adding to savings while in debt. Get out of debt faster= start savings for retirement etc faster.
I’m with you on that, it’s just I’ve been saving my whole life, so to stop feels so weird. But if I can get my debt lower, faster, that would feel good too.
Does your employer allow you to save for retirement from your paycheck? If so, it’s most likely a pre-tax deduction meaning that it comes out of your pay before your tax is figured. That way you not only save for retirement but lower your taxable income too. The caution is that the $$ you set aside are not generally touchable until you leave the job or retire.
I would put a little bit toward savings and retirement each month, and then sock the rest toward debt. That’s what we’re working to do, and for us, it helps with peace of mind, knowing that when the debt finally does go we won’t be starting from scratch on savings and retirement.
Congrats on finding work that allows you to work towards being debt free!!! I recommend reading Dave Ramsey’s Total Money Makeover or take his Financial Peace University class. In both he covers, what he calls, his 7 baby steps. Step one is a baby Emergency Fund of $1,000 and then baby step 2 pay off all your debt (exempt mortgage if you have one) using the debt snowball… then he goes into full emergency fund, retirement saving, paying of the house, saving for the kid’s college etc… My fiance & I have been working the baby steps – we are still getting working on getting out of debt but this has been a good balance for us … We did make a few small modifications; for example we had a full month of expenses for our baby emergency fund instead of just 1,000. we did that for 2 reasons: 1 made us feel better and 2 we live in a very expensive area so a 1,000 would not go far…. Good Luck!!!