I am a planner, that’s just what I do. With the payoff of Todd’s vehicle coming closer and closer, we have $7500 left to pay off our last debt in 2011. I am planning to have that paid off no later than June 2011. After that, it will take approximately 3 months to get our 3 month emergency fund in place ($6,000.)
I am following Dave Ramsey’s Baby Steps.
I know what the next baby step is, and that would be 15% into retirement accounts. Todd and I both contribute 5% of our income to our 401K at work (we should have cut that back to “0” while we were paying off debts, but we didnt.) The other 10%, I’d like to invest in a Roth IRA. That would be $500/month with one of Dave Ramsey’s ELP’s (Endorsed Local Providers.)
My question is about what we should do AFTER that.
The budget I’ve been doing is not what Dave Ramsey recommends. We have several bills that we have chosen to make “yearly” or “half-year” payments on. For instance, our property tax and home owner’s insurance. When I had the Akron house, they had an escrow account and it was always changing. A lot of times, I had a hard time getting quotes from insurance companies before they changed my rates and took money from escrow. It was just a pain. So, because we have 40% equity in our home, we were not required to have an escrow account. What does this mean? We pay property taxes on both properties (we own our residence, and the house next door) in January and July of every year. We get a discount for paying our car insurance and homeowner’s insurance as a lump-sum once or twice a year. We also save a monthly fee by regulating our propane usage ourselves and calling them when we want the tank filled instead of having them come out once a month to “top off” the tank (saves us $10/month!) In other words, I try not to have many revolving payments every month. I don’t like them.
That being said, I don’t save the money out of every paycheck for those revolving payments. When something is due, I put a hold on our debt snowball and pay what is due (which is why December is a rough month for us.)
When we are debt free (but the house,) have the 3 month emergency fund in place, and the automatic debit for the Roth IRA every month, we will have approximately $1250 a month extra. The thing is, this really isn’t just “extra money.” It is earmarked for:
- Property Taxes
- Home Owner’s Insurance
- Car Insurance
- Car Repair / New Car Fund
- Home Improvement
- Trash PickUp (they bill us quarterly)
- Doctor / Dentist / Medications / Deductibles
You get the point. When all is said and done, we’d have an extra $300/month to pay toward the house. With the extra money, though, I’d like to continue to contribute money to get that emergency fund fully funded to 6 months expenses ($12,000).
Oh my goodness, I’m rambling.
Should I lump the money we have left over every month into a savings account that will cover all of these expenses throughout the year or have separate savings accounts set up for each and every item on the list? If I lump everything together, I have a feeling we could pay down more on the house every month instead of putting money into accounts for something that wont be invoiced for another 10 months.