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10/21/2014

The finer points of setting goals, Part II

Right now 40% of our monthly take home wages goes to paying for daycare and saving for private school tuition.  24% goes to our mortgage, property taxes and van loan.  We have lots of competing savings goals.  Last week we discussed tuning up our number one savings goal, paying off the van loan (see last week’s post).  

This week we are going to discuss tuning up our number two savings goal, saving $15 K for emergency savings.  Over the summer we had lower expenses and some extra income and put $2838 into emergency savings.  We need to save an additional $12,162 to reach our goal of $15K.  

We used a Simple loan calculator  on the Summit website to calculate how much we would need to save per month to reach our goal (you can set the interest payments to 0%, since you are paying yourself in this example, and not re-paying a loan).  

$12,162 over 60 months = $202.70/mo

$12,162 over 72 months = $168.92/mo

$12,162 over 84 months = $144.79/mo

We can’t meet the $144.79/month payment on our current budget but that will change in the near future.  In March we’ll make the last $115 monthly payment on Louise’s 0% interest computer loan.  In April we can start putting that $115/mo into our emergency savings so we’ll add $1035 to the fund by December 2015.  We’ll have saved $3873 and need $11,127 more to reach our goal.  

In January 2016, we’ll have paid off the van.  That will give us another $400-500/month to divide among our savings goals.   If we set aside $445/month, we will reach our $15K goal in 25 months.  

Our coach Sherry pointed out that we needed to have a plan for when we could spend the money — what counts as an emergency?  For us it means things like:

  1. emergency house repairs that are necessary to keep us safe and protect the value of the home (ie: water or sewer leaks, roof repairs, etc);
  2. emergency travel for a family illness or death; and
  3. to replace lost income in the event of illness or job loss.  

We aren’t going to use it for family trips or remodeling the bathroom.  Those things are important dreams, but they aren’t essential.  

Takeaway for the Week

What is more important than we realized:   Setting long term money goals can be daunting at the start, but just make yourself pick some numbers and a timeline.  See how it works — adjust as necessary and enjoy the ride.  Be happy where you are.  Small incremental progress is progress.  Living within your means and not accruing credit card debt is powerful.

What is easier than we thought:  Saving ahead for our planned expenses in specific sub-accounts means that we won’t have to dip into our emergency savings to pay bills or take vacations.  

Check out our latest video on making a homemade birthday party project - A pinata! 

 

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"Be happy where you are." That is the key. Too often we look to the future and don't focus on what is good now. Thank you for the reminder.

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