We currently have about $16K cash. I'd like to have $30-35K+ for a ~6 month reserve. This will be a "single giant reserve fund" that will pay for large and/or unplanned expenses, frivolities like vacations, in addition to providing financial security/freedom in the event of hardship like job loss, medical expense, etc.
I know it will take time to get there. But it seems each time I reach some milestone (e.g., $20K, or briefly flirted with $25K) we get hammered with some large, unexpected expense which either saps the reserve fund, or adds to the debt.
Obviously, we should be budgeting for "unplanned expenses", and that's something I'm trying to work on as we've adjusted from two full-time incomes to one full-time + one part-time. The immediate concern is just getting out of the revolving debt, which should free up cash for building up the savings accounts or paying down other debts outstanding.
Examples over the last 12-18 months:
- $2000 for new hot water heater
- $2200 for vehicle repairs/maintenance (mea culpa, my Jeep is 14 years old, this should've been budgeted...)
- $2000 assessment for new parking lot on an "investment property"*
- $2300 for new washer/dryer **
* The "investment property" wasn't purchased as such. It's my wife's sole & separate from before we were married (I'm neither on title or mortgage). We have had one bad tenant in 11 years of renting it, and have never had to eat more than one mortgage payment between tenants. Rent covers the fixed expenses (mortgage, taxes, insurance, association dues).
** Both W&D were ~15 years old and have been on their last legs. Cheaper replacement options were available, but with considerably shorter expected lifespans (~10 years versus 25 years). We consider these more of an investment in the house itself (akin to a new roof, flooring, etc.) than a consumable. Feel free to disagree, but that was the rationale.
Total annual income is ~$130,000 but this is split unevenly between my full time salary ($100K), rental income ($10,000/year) and my wife's part-time income. I can provide additional detail re: income, expenses, assets, etc., if needed.
Our debt-utilization is under 25%, credit is generally quite favorable (774 Experian, 792 Transunion).
- Mortgage: $175K outstanding; 15 @ 2.875%, 12 years remaining.
- Mortgage ("Investment property"): $52K outstanding, ARM; 30 @ 5%, 15 years remaining
- Student Loans: $45,000 at 4% ($352 monthly payment)
- HELOC: $22,000 balance at 3.5%
- CC1: $3600 balance at 0% through December
- CC2: $2300 balance due Aug 28 to remain within grace period (this was an unplanned expense: new washer/dryer last week)
I am not asking how to get out from the condo mortgage, student loans, or even the HELOC, but simply for strategy to pay off the immediate obligations & credit cards, beyond which I can more comfortably divide our disposable income among those obligations + savings.
I had been planning to pay off the $3600 card over the next 90 days, but then our washer broke & we ended up with new washer & dryer. This expense will come from our current savings (it was put on a card solely for ease of purchase while we need to transfer $$ from savings to checking).
I'd like to pay off both CC's which amounts to a pretty staggering outlay in the next ~90 days of nearly $10K (we will have property taxes & homeowners insurance due September, totaling ~$4000 -- these were planned for, but the W&D were not!), which would basically cut our reserve/savings fund to barely one month's expenses.
This is a pretty tough pill to swallow, but it seems like the way to go. Like, the debt snowball approach; after zeroing out the CC accounts I should be able to redirect most of my budgeted "credit card bill payment" money ($1000-1500/month) to grow the reserve fund.
But this puts me in a cash position that is, well, way less than I am really comfortable with, and I fear the day that my 2005 Jeep will need to be replaced, or our central air unit breaks ($4500 to replace), or our driveway caves in, etc.
One alternative would be to consolidate the CC debts into the HELOC. I don't particularly like that, but it seems somehow more "manageable" provided we continue to pay it down aggressively (~$1000/month).
I could come up with an extra $500 monthly by temporarily (say, for the next 4-5 months) reducing my 401k contributions to the company match amount. I don't really want to do this, either, but there may be a case for doing so.
I don't feel particularly over-extended (assets > liabilities by a good margin, cash position & net worth increasing steadily, debt is going down).
We made a $52,000 down payment and have a 15-year note that pays down principal at the rate of ~$1000/month. So we have a nominally high mortgage payment (compared to the more popular 30-year note), but also considerably more equity. While this insulates us against downturns in the market, it comes at the expense of cash/liquidity.
I contribute about $750/month to my 401k, and we pay about $300 towards some life insurance policies, etc.
I figure lot of "average" people do not do one or more of these things, but we do all of them, and it's a bit of a double-edged sword: yes, we're saving for retirement, yes, we have well-funded 401k, yes we have strong equity position in real estate, but as a result of these savings/investments, sometimes feel cash-poor.