Jul 18 2012

Some new savings goals

In light of Shane’s new job, we’re evaluating our current savings goals and what we’d like to change.

So we can hit certain goals faster, we’re going to take a “savings snowball” approach (sometimes called a savings bucket).

More on the savings snowball at PT Money, and the savings snowball at No Debt Plan

Quite similar to a debt snowball, we’re just going to focus on one primary savings goal at a time for the bulk of our savings, with smaller regular contributions to other goals.

Once we hit a goal, we’ll move our savings snowball to the next goal and so on.

Shane’s new paycheck will be different. He’ll get a base salary, but he’ll also get a bonus flat dollar amount for every billable hour he works during the week. Some weeks he’ll have fewer hours and others he’ll have more — it’s the nature of the gig. The base salary will cover our expenses and the bonus can be used to throw at our savings goals.

That’s another reason why I want to primarily focus on one goal at a time — some paychecks will be smaller and if I do a high flat dollar amount per goal, I could be stretching it too thin at times.

:: Goal #1: Refinance our mortgage. Rates are way low. We can get a 15-year for 2.875% today with closing costs under $400, if not even lower. That is crazy! I’ve submitted our docs and we’re waiting for paystubs from Shane’s new job so the lender to move forward.

:: Goal #2: Bring emergency fund to 9+ months of expenses. Our e-fund’s purpose is to cover expenses in the event of a job loss, or to cover a car or house insurance deductible. We could also tap it for unexpected car or home repairs but I want to have separate car and house savings accounts going because it’s only a matter of time before SOMETHING breaks.

Our current emergency fund would cover about 6 months of expenses — but I left out one important cost: health insurance. If Shane left his new job, he wouldn’t be eligible for COBRA (it’s a small company) so we’d immediately need private insurance, or for him to start at a job that had a group policy. I’d also need to bump our e-fund to cover the cost of our new mortgage payment.

We hope Shane’s job works out for a long time, but we feel like a larger emergency fund is better than a smaller one.

We’ll focus on getting this goal finished before we concentrate our efforts on our next goal.

:: Goal #3: Hit the 529s hard. We have until the end of December to make contributions for the year. Indiana has that super-sweet tax credit of 20% off our state income tax, so throw in $100, get $20 off your state taxes. Woo! We want to get a nice tax benefit and we also want to catch up a little since we haven’t been contributing a whole lot yet.

:: Goal #4: Load up our IRAs. We’re already contributing some money with every paycheck and we’ll keep it at that same level for dollar-cost averaging’s sake. But we won’t add more until the first 3 things have happened. We have until April 2013 to make IRA contributions for 2012 so it buys us an extra few months. We can withdraw our Roth IRA contributions penalty-free in future years should something catastrophic happened and we’ve exhausted our liquid savings.

I view the Roth IRA as tax-advantaged savings for retirement and a bonus e-fund that I hope I never need, but will be glad it’s there.

That’s it for now. Once we get those things going, we’ll create a priority list of savings goals for other areas and we’ll tackle that.


3 Responses to “Some new savings goals”

  1. I like the idea of a savings snowball. I like that you also get to achieve your goals quicker by actually crossing something off a list, rather than feeling like you have a lot of different things all a long way away from being achieved. My partner and I are building a house, and obviously there will be a lot of things we want to get done in the first few years. So we will be taking this same approach. First will be replenishing our savings, though fingers crossed when we are at moving in point in a few months we will actually still have a good amount left over. From there we will start working toward different things in order of importance, first thing being the landscaping, driveway etc, the things that will make it more livable. We won’t have very much furniture, but that’s not high on the list of goals. Thanks for the perspective!

  2. Good luck with your new goal! Things just start compounding after a while and you’ll be amazed 10 years later how much you’ve got!

  3. I really like the savings snowball approach. I am about to try it out myself, so it’s good to read about your experience with it and others’. So far I’ve read that it has helped a lot of other people too. Keep up the work =)

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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