If I had to come up with one nice thing to say about credit card debt, it would be this: at least it gave me focus. Paying off that high-interest debt as quickly as possible was a clear-cut Priority #1 goal. Now, I’m a little lost.
I can see right here why people my age have trouble with finances. What’s important? What should I do first? What do I need to focus on? Where do I go from here? It’s easy to shove it all aside and think “I’ll just deal with it later.”
But that’s the worst thing I could do. Even if I don’t pick the exact right thing(s) to focus on, pushing toward any financial goal is better than cooling my heels and blowing all of my extra cash. Even just “saving” without purpose is better than nothing.
If just “saving” is a flashlight in the darkness, then saving with a goal is a Super Trouper beam. So, it’s time to find my new goal. Or goals. So what’s on the table?
Down to just one… ish. My student loans. These are very complicated: some of them are accumulating interest while I’m in school, and some are not. Some of them I haven’t taken out yet! 6 more months of school and I’ll be at my final balance of around $40,000.
Emergency Fund: Growing. All of the money I get from ING referrals feeds into this. I’m not going to make it a huge priority just yet, since it’s growing and I have a credit line of $6,000 between my two cards to fall back on in a real emergency. I’m not ignoring it, but it’s not at the top of my list.
Textbook Fund: Going back to the question I asked earlier in the year — is it a better idea to pay off a bunch of my student loan interest, and getting a bigger new loan to cover the cost of textbooks, or should I get a smaller loan, pay for textbooks out of pocket, and possibly only be able to pay off part of the interest before it capitalizes?
I ran the math, and it’s better to pay for the textbooks out of pocket. I’m putting aside the money this month, and hopefully I can get good enough deals to not have to use it all! Any money that’s left in the fund will get rolled into a different savings goal.
Getting Established Fund: Just six months until I finish classes and hit the real world! I’m not sure exactly what I’ll be doing, but if it involves moving out of my parent’s house and paying for my own space, then a “getting established fund” will be hugely important. First month’s rent/last month’s rent/security deposit? Oh boy, I think this fund is the most important of all.
Future Car Fund: My car won’t last forever. The dreamy environmentalist in me wants to live someplace where I don’t need a car, but the small-town girl in me hates cities! Realistically, I’ve probably got at least one car purchase in my life, so I’d better get saving for it. I’d adore never having a car loan in my life!
Retirement Fund: Compound interest! It seems like time to think about starting a Roth IRA while my tax bracket is rock-bottom and my credit card debt is gone. But should this take a back seat to the things listed above? What good are retirement savings if I have to go into debt to get textbooks or pay a security deposit?
I could go crazy trying to decide between all of these things. But really, the only thing to do is rank them up and make a savings snowball! Basically, I’ve got to come up with a minimum I want to save for each goal each month. Then any extra savings I come up with beyond those amounts, I put toward the goal at the top of the list. Once I complete the first goal, it comes off the list, and everything below it moves up one. Goals are reevaluated, and the process continues…
|Priority||Name||Goal Total||Monthly Minimum|
|2||Student Loan Interest||$1,500||$50|
|5||Future Car Fund||$10,000||$10|
Ok, I know, this list looks really wonky right now…
No monthly minimum for textbooks? Because it’s on top — priority #1 doesn’t get a minimum, it just gets everything I can afford thrown at it, after the minimums are paid for the other goals.
Only $10 a month into the Emergency fund and the Car fund? Well, those are low priority compared to the student loan and the Getting Established fund — both of the latter goals have a deadline within a year, so they need some major focus.
Retirement as the last priority? Only because the goal total is infinite, so it will never snowball down into anything else. The $5 a month is really just to start a habit, right now. I’ll increase the monthly minimum as my circumstances change.
What do you think? Am I doing it wrong? Am I doing it right? The beauty of a savings snowball (that you don’t get with a debt snowball) is that most of the money is just going into savings accounts, where it can be moved around if I change my mind about things. But I want to know what you guys think!