Step 1: Save $1000 for your Emergency Fund Step 2: Pay off your debts using the Debt Snowball (lowest $$ amount debt first)
- Step 3: Put 3-6 months expenses in savings
- Step 4: Invest 15% of income in Roth IRAs and pre-tax retirement
Step 5: College funding for children
- Step 6: Pay off home early
- Step 7: Build wealth and give
The last post in this series explored how we started our journey and how we eventually got to our current debt-free state. Now what? Funneling money into bills you already have is a no-brainer. This post will be all about where we have decided to go next in our budgeting crusade.
We wrote the last check to pay off our last bill around the middle of December. We honestly thought it would be this amazing moment that kicked off the next budgeting chapter of our lives. Instead, we floundered. We were indecisive. We had a lot of non-action. Granted, it was the holidays and there were a lot of other things going on, but we pretty much just avoided the subject.
Thank goodness for our financial advisor. She called to talk to me over the holidays and see how we were doing. That was all the kickstart I needed, we scheduled an appointment with her in January to sit down and hash out our options. She talked to us about our retirement, additional life insurance, what we wanted to save up for next. Even for my husband and I, who have been budgeting for several years now, having a 3rd party to discuss things with in a non-emotional state, made a world of difference.
Our Tentative 2-Year Plan
1. Mortgage Installment Loan – This is a small loan in addition to our regular mortgage, which honestly should have been included in our Debt Snowball. (More on mistakes we’ve made in another post) We are paying an outrageously high interest rate and the loan size is totally manageable, so this goes first.
2. Increase Retirement Contributions – My husband’s company will match up to a certain amount of his retirement contributions. To max this out, we would have to put in a huge amount of money that isn’t really feasible for us right now, so we are going to increase our contributions to 1% after paying off our installment loan.
3. Pay Cash for a New Truck – My husband’s truck has been a work horse, but is starting to show signs of age. We just put a decent amount of money in to get a few things fixed and get it tuned up, but it will need to be replaced over the next few years. This may not make sense for some to wait on something else to save up for a truck, but it’s a good logical next step for us.
4. Add Additional Life Insurance – This one is hard for us to wait on, but we went back and forth and back and forth on what to do first. There are so many choices at this stage about how best to dole out our money, what should we wait on, what do we need to do now to secure the future? We have some life insurance right now, but are planning on adding to our current policies. We both know that it gets more expensive the older we get, so we are hammering out our plan as quickly as possible.
5. Put 3-6 Months Expenses into Savings – While I know this is going to feel hard, as there are definitely other things we could use this money for, it will also come with peace of mind which is pretty priceless. Our next big step is going to be selling our current home and buying a new one, so knowing this extra savings is there will help.
6. Increase Retirement Contributions – At this point, we should have our money working for us pretty well, so we will increase our retirement contribution another 1-2%.
As I mentioned before, our next step is going to be saving for a new house. While we are doing this, we hope to put some money into our current home for some cosmetic upgrades to get it ready to sell. While we would love to move right now, it just makes the most financial sense for us to stay in a home that works and is totally functional while we put our money to work in other places.
Just having a plan written down and agreed upon by both my husband and I is an amazing feeling. We have been talking over the last few years about what we’d like to do first after we paid off our debt, but as I can’t remember anything, we’d have to have the same conversation every few months. Then I would forget again. Then someone would be itching for a new truck sooner rather than later. Then we’d have to have the conversation again. This led to more than a few disagreements, as our plans seemed to change with our emotional state. Having everything planned out on paper means no more fruitless discussion.
Please ask questions. This is a HUGE topic. I can only touch on so much in one post without getting overwhelming, especially since everyone’s situation is so different.
I would love to hear where you are at in your budgeting journey. Did you (or do you) have your plans in place for after you pay off your debts? It’s interesting to me that this was such a big hurdle for us, you’d think paying off our mountain of debt would have been the hardest step.
The next post in this series will be all about how we manage our savings.
In case you missed it:
- Creating and Sticking to a Budget: Our Story
- Creating and Sticking to a Budget: Gathering your information
- Creating and Sticking to a Budget: Our “Zero-Based Budget”
- Creating and Sticking to a Budget: Starting our Dave Ramsey Journey