How to allocate extra monthly money

[deluxmary2000]

So I know a lot of this has been gone over multiple times, and I'm sure you are sick of answering the same question in different format, but I'm going to ask anyway in hopes someone takes pity on me and gives good advice

 

I'm going to be in the situation in a couple months where I'm going to have my car, student loan, and all other revolving debt (except mortgage) paid off. It will leave me an extra $2,000/month that I haven't had before. All my essentials and fun money are already budgeted, so this is "extra money".

 

I'm currently contributing the max my employer matches (6%) to our 401k plus we have a pretty awesome pension plan. So what should I do with the extra cash? Here are the areas I'm lacking:

1 - I have practically zero emergency fund set up. This should probably be a priority, but where should I keep the money? We would need about $34,000 for 8 months of emergency funds. That seems like a bit much to just have in a regular savings account. Is there somewhere better to keep it?

2 - Haven't started saving for DD's college yet beyond birthday money, etc. She's 5.

3 - I guess I could also pay more towards my mortgage.. but our interest rate is pretty low. We've only had the house 2 years, but are planning on staying there a very long time.

 

I'm also thinking that I'll need a new car in 2 years max, so I should probably be setting aside money for that.

 

Thoughts? WWYD?

[Baddies4Breakfast]

Congrats on paying all that down!

 

 

What I would do only (may not apply to everyone's style): Keep it simple. Out of $2000 extra per month:

 

1) $1200 towards emergency fund. This is $14,400 in 12 months.

2) $800 towards car fund. This is $9600 in 12 months.

 

Play around with the numbers. If you want $1500 emergency fund and $500 car, for example.

Edited March 2, 2012 by Baddies4Breakfast

[Repairerer]

Congrats on contributing up to the employer match to your 401k already.

 

You might want to play around with the numbers of maxing it to the legal limit, because it will reduce your taxable income.

 

You might find you can increase this, and due to decreased tax liability, still be able to contribute a good amount toward your shorter term liquid savings goals.

[deluxmary2000]

Congrats on paying all that down!

 

 

What I would do only (may not apply to everyone's style): Keep it simple. Out of $2000 extra per month:

 

1) $1200 towards emergency fund. This is $14,400 in 12 months.

2) $800 towards car fund. This is $9600 in 12 months.

 

Play around with the numbers. If you want $1500 emergency fund and $500 car, for example.

 

Thanks! Where should I put the money? Right now all I have is an ING savings account. Is that the right place for it?

[Dane]

I am so jealous but so very proud of you!!

 

Right now we only use ING. We have 7 accounts there and use that for the envelope saving system.

 

I would personally do the 1500 emergency fund/ 500 car fund right away. I would keep it at ING unless I was able to find a higher interest money market account to sink it into.

 

And I would plan on paying cash for my next car if at all possible. 500 x24 months= 12k Nice cars are so cheap now-- even if you had a large downpayment and then only a year or 2 of a loan that would be nice!!

[jolla]

I would open and max out an IRA (Roth or traditional). I would also max out my 401k (not just to employer match).

 

As far as where to keep your emergency/car fund, right now no one is paying any real interest, so it doesn't much matter. When rates go up, it would be worth the time to ladder it into CDs.