Back when we were in debt, it was pretty easy to decide what to do with our paychecks. Pretty much everything went towards paying off debt, working from the highest interest rate to the lowest. We didn’t have to think about priorities or goals other than getting out of debt. But now it’s a little bit different. We still have debt, but it’s a mortgage. We owe about $162,000 on our house. We’re five years into a 30 year mortgage, although based on an amortization table I found, our principal balance is somewhere in the eighth year of the repayment schedule (proof that our extra payments are helping). Paying off the mortgage is a major goal for us, although it’s a pretty long-term one (ten more years would be fine with me). We’re also focused on saving for retirement, setting aside money to cover a few months of living expenses, saving for our child’s education, and getting to the point where we don’t have to always wonder whether we can afford something we want/need. Since we no longer have the need to get out of debt hanging over us, it’s gotten a bit more fuzzy as to what should be a priority for our money.
Part of me just wants to keep putting everything towards the goals that we laid out for the year. We’ve already finished the HSA and my husband’s IRA, so we can cross them off the list. Originally my plan was to just move right on to my Roth IRA, but now I’m not so sure. I’m thinking I might want to just put extra money into our HELOC for the next few months, to have a cushion of readily-available cash. We put $100 into our ING emergency fund every month, and I consider that money to be off-limits unless there is a true emergency. But with a new baby arriving next month, I’m feeling like we might want access to some extra money that doesn’t require an emergency first. So I think we’ll hold off on my IRA for a while. It’s still very much a priority though, and I’m planning to get back to it by the fall.
Once the baby is born, we’re going to open a 529 account, although I still have to research our options there and figure out what our best option is. For now, I think we’re going to put $100/month into the 529 plan. My husband and I both agree that while it’s important to save for our child’s education, it is a lower priority than securing our own long-term financial future. We firmly believe that it’s the responsibility of both the child and the parents to pay for college, and while there are loans and scholarships available to pay for an education, there is no such thing for funding retirement. For us, a secure long-term future involves owning our home without a mortgage, and having enough money saved so that we can have the option to retire in the next 25 – 30 years. Knowing what our priorities are makes it easier to decide what to do with our money. It goes first to retirement savings (including the HSA, which we plan to use mainly as a retirement account), then to paying off the house, then to funding our child’s education.
Somewhere in that mix, we need to add a “just for fun” fund. Maybe a vacation account, somewhere where we save money that is not intended for any long-term goal. Neither of us is particularly interested in buying things, but we both would like a little more financial freedom to do things. Things that cost money, and that we have tended to skip in the past because of the money involved. I remember wanting to take my husband on a hot air balloon ride for his birthday a few years ago and then finding out that it would cost $500. At the time, that was obviously a deal-breaker, since we were still in debt. It would be nice to get to a point where the experience would outweigh the money involved. We both have a long list of free activities that we love, but it would be good to be able to add in a few experiences that do cost money without stressing about the expense. Whenever we’ve sat down with a budget calculator in the past, we’ve had to focus primarily on ways to eliminate debt, and it’s nice to be able to consider the possibility of adding some fun money into the mix for a change.
So I’m rethinking our finances a little. Maybe it’s time to be a little less strict with how focused we are on saving for long-term goals. Maybe we need to set up a “just for fun” account and then actually allow ourselves to use it. I do get a great deal of satisfaction out of saving for the distant future. It’s not drudgery for me – I truly enjoy it. But adding in a little more here-and-now spending might be a good thing too.
What about you? How do you balance your long-term goals with your short-term desires? How strict are you with your budgeting? What activities do you consider to be worth the expense?