by Matt Fildes
Hey everybody and happy Tuesday!
There’s been a lot of talk on this blog lately with respect to the the proper amount of cash savings to have on hand in case of an emergency. If you haven’t yet ready my post and the subsequent comments, I suggest you do here. Ashley also wrote some great posts about this topic yesterday, here, and here. Based on the comments on my post, as well as Ashley’s, a case can be made for both:
1) keeping your EF low and paying off the debt as quickly as possible and
2) saving up 3-6 months worth of expenses before tackling at debt.
After doing some thinking and sleeping on it for a couple of nights, I’m going to pursue item #2. Based on my current expenses, 3 months worth would put me at $3,803.31. This is assuming I would cut out my internet service, my YMCA membership, cut back on gas, and cut out anything I could that could be considered “extra”. I think I would feel more comfortable in the $4,000-$5,000 range. However, this means I won’t be paying anything except monthly minimums on my student loans for the time being.
As for a timeline: I feel like I could have this saved up by February. At the point at which I have my target savings in hand, I will do what I need to do to keep this savings untouched for the duration of my debt payoff. As many of you have already observed, for the last few years, I have kept all my emergency funding, short-term savings and long-term savings in one account which has continually gone up and down as I saw fit. I’d like to get better at making future projections, in terms of costs, so I that I can weather them without dipping into my newly formed EF.
What this all means is that after today I will no longer be providing any “Weekly Debt Updates”. Instead, I’ll post weekly updates respective to me achieving my savings goal. Once my goal is reached, I’ll continue my “Weekly Debt Updates” where it left off today.
I’d love to hear more feedback in the comments.
As for my last debt update for a little while, here you go:
| Loan Name | Interest Rate | Original Balance- May '09 | Current Balance | Total Paid Off | Paid Since Last Update |
|---|---|---|---|---|---|
| Sallie Mae 01 | 5.25 | $27,837.24 | $23,063.69 | $4,773.55 | $598.92 |
| Sallie Mae 02 | 4.75 | $22,197.02 | $18,506.00 | $3,691.02 | $50.32 |
| Sallie Mae 03 | 7.75 | $20,692.10 | $0.00 | $20,692.10 | $0.00 |
| Sallie Mae 04 | 5.75 | $10,350.18 | $0.00 | $10,350.18 | $0.00 |
| Sallie Mae 05 | 5.25 | $6,096.03 | $0.00 | $6,096.03 | $0.00 |
| Sallie Mae 06 and 07 | 4.75 | $6,415.09 | $0.00 | $6,415.09 | $0.00 |
| Sallie Mae- DOE 01 | 5.25 | $5,000.00 | $0.00 | $5,000.00 | $0.00 |
| Sallie Mae- DOE 02 | 5.25 | $3,000.00 | $0.00 | $3,000.00 | $0.00 |
| AES | 6.8 | $9,000.00 | $0.00 | $9,000.00 | $0.00 |
| TOTALS | $110,587.66 | $41,569.72 | $69,017.94 | $649.24 |
Have a great week!
I keep my liquid savings in two accounts. One is my larger emergency fund in a brokerage account and everything else in a savings account at my bank. I split this account balance with an excel spreadsheet so I can be sure I’m planning for annual expenses, upcoming house spend, future vacations, etc. I earmark the first five hundred of this as easy access emergency fund.
Once I’ve attained my savings goal, I may do the same. Ashley recommends Capital One 360, below, which I have heard good things about. So, if I’m understanding correctly, you have $500 in savings with your bank and the rest is with a brokerage?
February is not so far away! Amazing you can save that much in that short of a time. It’s reducing risk while you pay off the rest of your loans, which is great.
Also, when you get to the end of your debt repayment, you can tap into the fund to finish off the last 1-2K in one fell swoop. Then, with no debt payments, your e-fund would build up even more quickly to wherever you want it to stay for the long term. But in the mean time, you have mitigated risk by having enough money for emergencies for the last phase of repayment.
Right now I am keeping my savings fairly low. We are living on last month’s income and have an extra 1K on top of that. This works out to about 2 months worth of bare bones expenses at any time in our checking account.
Most small emergencies can be handled by the 1K fund, reducing the month’s debt payments or borrowing into next month’s income. If we have a big emergency like job loss, we can 1) live on one income and 2) skip most debt payments with penalties for months because we are so far ahead. This is what is right for us, right now, as we try to finish this big debt that feels so hard to tackle.
You’re right, it’s not! Only a few short months away. As far as the end of debt payment, I was thinking the same thing- I can pay off the last 2K with one payment and build my EF back up within a month or two.
Good job to you since it sounds like you have thing figured out with your savings. I wish I could say the same right now, lol.
I would recommend Capital One 360. It’s got a higher interest than regular store-front bank savings accounts (still not much, but better in comparison), and it can transfer easily to your regular bank account. My favorite feature is that you can create sub-accounts for different purposes (e.g., Emergency Fund, Slush fund, etc. etc.). If that’s more than you want/need, I’d just open up a separate savings with your current bank. I think its helpful for the actual EF to be physically separate from other savings.
Thanks, Ashley. I’m definitely going to look into it!
I understand, but I will miss your fabulous updates!
A couple of thoughts … Things rarely need to be either/or. Perhaps you can pay the minimums through the end of the year, fund your EF, and then as of January, split that money between your EF and your debt payments until you reach a figure you’re comfortable with in your EF.
Do you get an end-of-year bonus?
Thanks Debthaven, but they won’t be gone for long!
I realize that I could split where my income goes, as you suggest, but that is not my personality. When I decide to focus on a goal, I have to do it with 100% of my focus. I don’t like splitting my focus and my resources to different goals at one time- it makes me impatient, makes me feel overwhelmed and makes me feel like there isn’t enough time in the day. I want to focus on one aspect, finish it and then move on. It’s already taken me a lot effort to stop my debt payoff to rebuild my savings, so I need to focus on that for now.
I may/may not get a bonus, but it occurs at the anniversary of my hire, which happens to be the beginning of February. Since it’s based entirely on how the company perceives my performance (it’s pretty subjective) I don’t count on getting anything extra. However, last year was a nice surprise in that I got 3% of my salary as a bonus. Hopefully this year will be the same, but again, I’m not counting on it.