Obviously, our long term goal is to pay off all debt aside from our mortgage.

I’ve already broken this down in terms of what debt gets paid off first. I am aiming to get all credit card debt paid off by next March.

However, before I go whole hog on the debt snowball, we need to get some savings in place first. Because both my husband and I work, and because our monthly expenses are fairly high, I want to get $2000 set away in a savings account for emergencies. That’s high priority.

Secondly, I want to get a buffer in place so we can use YNAB’s rule #1. Between the two of us, we bring in around $7500 a month. This is not equal to our expenses, so I know we wouldn’t need that full amount as a buffer.. Also, I don’t mind building up to that gradually. Already there is cash building in our checking account due to budgeting money in categories for yearly expenses money that is earmarked, but won’t be spent for several months.

And this is a very short term goal, but as I’ve mentioned previously, we are refinancing our 1st mortgage to a 30 fixed (currently, it’s a 5/1 arm and would adjust next year. With interest rates as low as they’ve been, we decided to go for it now) I am socking money away to bring to our closing, which actually, is happening on Friday (barring anything disastrous happening). I put $1500 away last month, and have earmarked another $1500 in February’s budget so we will be bringing $3k to closing. Other closing costs and prepaids will be rolled into the mortgage. (BTW, how antsy am I to get that final closing cost sheet? Answer: VERY ANTSY.)

So, my short term goals:

-$3k to take to closing (which is this friday, so this one is about to come fruition)
-$2k in emergency savings
-build up a buffer

My husband gets a bonus at the end of February/beginning of March every year, and lucky for us, it’s a good chunk of change! In the past, we have used it on things we want. This year, we’ve decided we want to be out of debt more than we want more “stuff”. HOWEVER.. we did decide that we would take $1,000 (total, not each of us) and blow it on fun stuff. I am going to get a flash for my camera (about $250), and he is going to get a PS3 (I think around $400, but honestly, I have no idea). I am hoping that a few hundred left over we can put toward car tires, but we will see.

We have decided that the rest of the bonus will be divied up as follows:

$2000 will go to savings,
$2000 will go toward building a buffer,
the rest will go toward debt.

I am especially glad that we haven’t put a number on the amount going to debt, because then if the bonus comes in at MORE than we thought it would, we would be tempted to lump the “extra” into the fun money. I have tentatively planned on $8,000 going toward debt, as $12,000 is around what last year’s bonus came out to. Again, if there is more, a few hundred going toward car tires would not be amiss with me!

So the buffer I’m still a little fuzzy on when exactly we’ll have a full one. I managed to sock away $1500 in Jan. and Feb., for the closing costs. In March, we’ll have $2k toward the buffer from the bonus, we’ll be getting $1500 back from escrow on our old mortgage, and if I can stuff another $1500 into that category (as I showed I could do in jan and feb) in March, then we could be operating on $5k worth of buffer money in April and put all April paychecks in the “primary” category instead of “supplemental”.

This sounds GREAT, but at the same time, it would put a bit of a damper on the debt snowball. We would only be able to do the minimums march and april if I went with that plan, meaning we wouldn’t really kickstart the snowball until MAY. Ergh. Anyway, I’m just not sure. Given that we managed to pay off $750 in January even with socking away $1500.. maybe we can do both. I guess we’ll see.

Related Posts:

• February 16, 2008 -- tax setback? maybe… planning just in case (3)
• April 12, 2008 -- update, and questions we’re asking ourselves (2)
• March 27, 2008 -- update on the no-interest / savings thoughts (0)