Money Choices

I'm a personal finance nerd. I love personal finance blogs and podcasts. I think I missed out on not doing something in finance/advising as a career.

Mr. Making It Bright and I are at a personal finance crossroads. Decisions, decisions. Being a grownup is hard work... a lot of the time.

We used some money we'd saved for something else to pay off the Mr.'s student loans a few months ago. Headache after headache with the student loan company really pushed us to just be done with them. We were sending extra payments monthly and they were advancing his due date and not pulling ETF payments, even though we were sending a signed form with every payment highlighting "DO NOT ADVANCE DUE DATE". We finally decided to just write the check and be done.

Photo credit: Lendingmemo

But I still have a balance on my student loan from undergrad (cash flowed my Master's degree). A little less than $7,000.

Now we're tempted to pay off my loan because the student loan company (same as the Mr.'s) is starting to pull the monkey business they did with his account. And I'm just fed up with the insanity of dealing with them, and the debt. 

So, should we continue to slowly make extra payments and be done in a little over a year? Or should we pull money from our emergency fund and just be done with them FOREVER? Then we would be debt free, except for our mortgage. That's big, people.

Impatient me says to write the check and be finished, using the small balance in our emergency fund as motivation to pile more in there as quickly as possible. Anxious me says to be patient and just keep plugging away, and keep a healthy emergency fund. As it stands, our emergency fund would pay for three months of full expenses (saving and fun money) or five months of bare living expenses. Pull out what we need for the full student loan repayment, and we'd easily have three months of bare expenses, roughly two of full expenses... That's scary considering we have only one income. Yes, it's an incredibly secure income, and yes we have a very healthy retirement account balance...

This is hard stuff.

What do you think? 

Go for it and just pay it off from our emergency fund, using the small balance as a motivation to curb spending to save more to get our balance back to where it is today? 

Or play it safe and go slow and steady, finishing off the loan in a little over a year? 

Financial Fragility

There is some scary news in a recent paper that has been published by the National Bureau of Economic Research and is all over the blogosphere and other news outlets. Big surprise, right? 

The survey question: If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?

The response: In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable.

Yikes. Just scary. Financial fragility. 

Personal finance gurus recommend saving at least 3 to 6 months of expenses in an emergency fund. In her newest book, The Money Class, Suze Orman recommends 8 months of expenses. With our "new economy", I don't think 8 months is unreasonable at all. It could easily take that long to find another job. Your comfort number depends on your situation. Are two people working, or just one? What are your liabilities? Do you have family that could easily loan you money during tough times?

How is your emergency fund? Would you be able to get your hands on $2,000 in 30 days? Without borrowing from your 401K or selling things you own? Or using a credit card?

We recently tapped our savings to pay off a car loan (2 years early!) and have just a few months of expenses in savings. While I know it's more than many people have, it's not enough for me. I want to have at least 8 months. J-bird is the only one working, we have liabilities (car loan, student loans, mortgage). 8 months of expenses is our next financial goal. What is your next financial goal?