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?
LOLgator says
I’m confused. Is the HELC not considered “debt”.
FrugalBabe says
The HELOC is debt – it’s part of our mortgage. We owe $136,000 on a fixed mortgage and about $26,000 on a HELOC. When we bought the house, we only had 5% to put down, so in order to avoid paying PMI, we got a HELOC for the remaining 15%. The HELOC is attached to our checking account, so as soon as we deposit paychecks we transfer the money to our HELOC in order to keep the average daily balance as low as possible. We can put extra money into the HELOC (which lowers the monthly payment) and then just transfer it to our checking account if we need it. So it’s a lot easier to access than the money we keep in our ING account.
MITBeta @ Don't Feed The Alligators says
The type of “fun” savings is what David Bach, author of The Automatic Millionaire, would call a “dream basket”. It’s no fun to be responsible all the time, but we can all benefit from planning to be irresponsible, as it were. Good luck and have fun!
Jessica says
http://personal.fidelity.com/products/checking/content/cards.shtml.cvsr?imm_pid=1&immid=00197&imm_eid=e12833&buf=999999
You should check out the link above. It’s for a fidelity 529 acoount. It offers 1.5% on all purchases. I use the one that is for the brokerage since I don’t have kids and I make sure I charge everything. I feel like I have saved without really saving. It’s a really nice reward card when you think that $75 dollars will add up to a lot more.
Jessica says
You should check out fidelity’s 529 rewards credit card acoount. It offers 1.5% on all purchases. I use the one that is for the brokerage since I don’t have kids and I make sure I charge everything. I feel like I have saved without really saving. It’s a really nice reward card when you think that $75 dollars will add up to a lot more.
Debbie M says
I save something monthly towards each of the following:
1) retirement
2) car expenses
3) house expenses
4) my next car
5) long-term fun
That last category is for things that are so expensive you have to save up for them. So for me it includes vacations, furniture, and electronics. A hot air balloon ride would have come out of that fund.
Even if you just put $50 or $100 a month in that fund, since you are used to not ever spending any money on things that pricy, it will add up to some real money before you know it. And it’s really nice to have some money you can spend guilt free, knowing that all your other goals are being covered.
I don’t have the same kind of prioritizing questions you have, because every time I get a raise, I decide what my budget will be, and I save the same amount each month toward my goals.
Shanti @ Antishay says
You post a great question. As I near the end of my debt (almost there!!), I’ve been thinking about this a lot. I think I find anything that educates me to be worth the cost, as well as anything that I will thoroughly enjoy. I plan on saving a small ammout of my money to be able to go on vacation, and to buy a new pair of slippers. Anything that will fulfill me long-term is where I like to put my money :)
NtJS says
FB- I love the idea of putting money into a ‘just for fun’ account. It would be great to have some money already set aside for fun stuff, rather than trying to find it in the budget each month. Will have to bring that up at the next budget committee meeting.
When baby was on the way, we started piling money up into a ‘baby’ fund. Nothing fancy – just another column on the savings breakdown spreadsheet. It’s purpose is as you are describing – general baby-related needs. We knew that we had all of the paraphernalia, but may have some big doctor bills. When you know a storm is coming….
Post-debt-snowball, we took our extra income and finished the emergency fund, then funded retirement, then college savings. After that, and it sounds like you are there, you can start putting extra down on the house. At the same time, if you want to save money for other things – car replacement, home renovations, vacation, whatever – then you can do it. You have taken control of your income, now you get to use it. Me? I’d pile up ‘baby fund’ money. If you end up not needing it, then you can cross that bridge.
scantee says
Our funding priorities are:
1. Paying off our second mortgage
2. Retirement
3. College savings
4. Savings for future car purchases, home improvements
5. Paying down student loans
6. “Fun” savings
I started the fun savings last year and, honestly, it’s really hard for me to fully fund it. Other priorities so outweigh it I always find a reason to divert extra money elsewhere. Paying off the second mortgage, our number one priority, should be done in a year and after that I feel like we will be able to breathe easier and start enjoying our extra income more.
Alison @ This Wasn't In The Plan says
I’m trying to do the same thing. I’ve realized that saving for the future is important, but it’s important to have fun too (now that we’re in pretty good financial shape). Still, it’s hard for me to not put extra money towards something responsible.
Frugal Trenches says
For me a yearly holiday is important. I know too many people who’ve died young and had so many dreams they didn’t meet. I also think there is real value in furthering yourself and your children by seeing the world, exploring a new culture and even learning more about your own country.
I also find when I budget for it and plan it and know I have a break coming up I actually do well with not spending in other areas. Also I know a lot of friends who won’t take a yearly holiday (for me it needs to be a week at least!) and then will get so burned out and stressed they’ll blow even more money on a weekend away. Yes,having gone without and spent money due to stress, a yearly vacation really does help!
Great post!!
steve says
I don’t like to get caught at the micro-level of deciding “should I do x or y with my money”. In order to avoid that, I look first at the macro-level:
The way I approach this is I have a target for my long term goals that are necessities, like retirement, and any other expenses that are necessities. If I am on track to meet those goals and have extra money, I budget it for “fun stuff”. Of course, I budget a small amount for fun stuff anyways, but if I have more money than I need to meet predetermined survival-and-security type goals, then I will consider upping the “fun” basket.
right at the moment, I am still not on track for these long term necessities, so fun money is on the backburner–low but not nonexistent.
My priorities may change in the future, but that’s how I guide my month-to-month spending right now.
steve says
I think my main point above, which I didn’t express very well, is that it is easy to get distracted once you have 10,000 in an emergency fund and $5000 in your checking account. That money can fool you into thinking you have more money than you really have and that you can be looser with your money than you really should.
So you need to keep your eye on the macro goals. If you need to save x for retirement per month, you need to save x. If you are not there, then it’s probably a good idea to lay off the discretionary spending as much as is practicable and continue reserve the lion’s share of your spending for things that are good investments, whether educational, business, or other.