Last week I talked about the need for my wife and I to decide on a new savings goal. We had been saving ten percent of our paychecks each month in the Joint Savings Account, which allowed us to do some fun things and avoid credit cards, but wasn’t really a place for money to grow. We had to keep the goal at ten percent because I was focused on eliminating my credit card debt. Now I’ve done that, so it was time to re-examine our options.
I made a copy of our Household Budget spreadsheet and started playing around with the percentage number. Ten percent wasn’t getting us anywhere, and fifty percent wouldn’t leave any room even for buying new clothes. We eventually settled on twenty-five percent, which we’ll try for a few months and change later if we need to. At twenty-five percent, we’ll be saving $1,217 a month between the two of us, which will give us a one-month emergency fund in four months, and a three-month buffer in eleven months. I doubt we’re going to make it a full four months of saving before we decide finally to get a professional to come trim these trees or fix some other part of the house, and that doesn’t worry me. As long as we’re not spending frivolously, and especially as long as we’re not creating new debt, then we’re on the right track.
The twenty-five percent goal also means something else: even if I increase my weekly personal spending to $180, which isn’t hard to do if I want to have regular haircuts and keep taking improv classes, I’ll still have $1,000 a month left over. I read through the comments on last week’s update, and I took another look at Dave Ramsey’s Drive Free, Retire Rich video, and I think I’m coming around to the idea of making extra principal payments on my car loan.
If I directed the entire $1,000 every month toward the principal on the car loan, the payments would stop fourteen months early, I would save over $1,300 on the loan, and of course we would reduce our joint monthly expenses by $575 (I’m working with a 10.15% interest rate… pathetic, I know), which would enable us to save even faster.
Am I overlooking any other, smarter ideas?
Published or updated August 1, 2010.