Priorities?

[applecider]

After reading through lots of threads here and lurking always I wanted to ask opinions on my situation. Not a crazy situation, but just wondering...

DP has had some raises recently and will have 2 or 3 more in the next year (he's an apprentice working toward journeyman). Now that we are no longer treading water financially speaking, I wonder how should I prioritize the extra money? Currently this is what we have:

401K: 8% of gross pay added monthly
Savings: 1 months expenses currently in there, none added regularly
Car: $8,600/8.5% interest
Student Loan: $6,650/ half at 3.6% and the other half at 4.2%

Extra money amounts to maybe $200 a month. Not really sure on that but I've been trying to keep track of what we spend and theoretically we should have AT LEAST this much left over. Sometimes we don't so I think I'm spending more than I think I am sometimes. Yes, I want to curb that!

Anyway, wise frugal and financially sensible people, what should be at the top of my priority list? Do I save first, then pay down debt? I'd love to hear your opinions.

[jeca]

I would start throwing it at the car to get that paid off quicker.

[Kyamo]

I would put it on the car loan too, thats your highest interest rate and you already have some emergency savings.

[p.s]

hmmmm.. i would vote car too. Mainly b/c I so don't like debt of any kind.
Now if your car loan interest was less, say 6%, then I might vote max 401k. The reason being that if you look at past trends (since like the Depression), returns on an index of stocks would be greater than the interst of the car. And it's tax sheltered.
On the other hand, to be free of any debt is a very comfortable situation.
Either way, good job..no, GREAT job... on saving!

[SuzyLee]

1. one more month of emergency savings.
2. retirement up to 10% (this may not take the whole 200$ depending on how much he makes and the fact that it is pretax).
3. Anything else to car.

[MorganRiley]

I would pay off the car first

then the student loan

then store up more emergency fund

[phathui5]

Pay off the car

Then the student loan

Then finish out the emergency fund (3/6 months of expenses)

[cdahlgrd]

I would start paying regular into emergency savings. Times are touchy and it is always good to have a little cash on hand.

You could do both emergency and car at the same time (however, you would like to divide the money), then up your retirement when the car is paid.

[EmsMom]

Because the financial times are a bit dicey, I think I would first beef up the emergency fund, then go after the car loan. I might even just put a bit extra towards the car and save the rest. You may also benefit from spending some of it on ways to save in the future. For example, if you can take some of it every month and use it to buy loss leader type items at the grocery store (toilet paper when it is cheap, etc.), you might come out even more ahead after a couple of months. Same goes for things like wool sweaters and blankets that would allow you keep your heat turned down more in the winter, or winterizing your home. Starting a simple vegetable garden. Things like that. You are doing great with the savings!

[Knittin' in the Shade]

I'd add at least another month to the savings (preferrably 2 months) then start to hack away at the student loan. Once that's paid, I'd up the 401K to the max contribution, and then the student loan.

[applecider]

Originally Posted by Knittin' in the Shade

I'd add at least another month to the savings (preferrably 2 months) then start to hack away at the student loan. Once that's paid, I'd up the 401K to the max contribution, and then the student loan.

I'm thinking you mean savings, then car, then 401k then student loan? This was what I was thinking. What is the recommended percentage to go into the 401k? We were doing 10% but when he got his last raise, it made it more like 8%.

Thanks for the all the opinions! I just really can't wait to be more fiscally responsible with our money. I think the hard thing is for me to budget for stuff accurately. I have excel spreadsheets with our checkbook on it, generally we only use the debit card. That way I can track purchases and categorize them. I wish they made a bank account with several "folders" or something so that I could just transfer money around to say "car" or "pet" and just spend for those things out of those folders. I guess that's what the envelope method is. I don't do well with cash though. It tends to get spent and I have no idea where. I like the debit cards because then if DP spends $$ somewhere, I know about it and he is terrible about saving receipts.

[mommy2naomi]

Personally I would save another month or two of emergency funds. Then I would check with car finance company to see if there are any penalties for prepaying. If there are none, then I would send it there, otherwise the student loans.

8% to 401K is very good so I wouldn't be in a huge rush to up it to 10%, especially right now since everyone is losing money.

[Azuralea]

Originally Posted by mommy2naomi

Personally I would save another month or two of emergency funds. Then I would check with car finance company to see if there are any penalties for prepaying. If there are none, then I would send it there, otherwise the student loans.

8% to 401K is very good so I wouldn't be in a huge rush to up it to 10%, especially right now since everyone is losing money.

This is what I would do. Emergency fund first, then ditch the car debt as soon as you can.

[Jadzia]

Originally Posted by mommy2naomi

8% to 401K is very good so I wouldn't be in a huge rush to up it to 10%, especially right now since everyone is losing money.

Actually right now is a great time to increase your contributions, since you would be acquiring more shares at rock-bottom prices and you will catch any subsequent market rallies which will dramatically increase the future size of your retirement account.

Is there a match on your 401k? I would definitely try to at least contribute to get the match, then pay off your debt.

Employer match funds are free money and gets you a 100% return even in a down market.

[SeekingJoy]

Originally Posted by cody'smomma

What is the recommended percentage to go into the 401k? ...

I wish they made a bank account with several "folders" or something so that I could just transfer money around to say "car" or "pet" and just spend for those things out of those folders.

I often read that one should save 15% or so of gross income. However, considering what you shared of your finances, here is what I would do:

1) reduce retirement saving to just the level to get employer match (often 6%)
2) use all available funds to pay off car loan ASAP
3) save 6 months of expenses in emergency fund
4) increase retirement savings back to previous level of 8% gross income
5) pay off student loan and any other debt
7) max out retirement

I personally don't think the domestic stock market is going to pick back up in the short to medium term. The housing loan crisis still has years to unravel and federal debt is mind blowing and quickly escalating.

As far as a bank account with several folders, ING allows sub accounts that you can move money between. We have our emergency fund, car savings, house repair savings, x-mas savings, etc in sub accounts there. For checking account "folders," check out Mint.com, Quicken or Wesabe. All let you categorize debit card expenditures to better track your spending.

[applecider]

Originally Posted by SeekingJoy

As far as a bank account with several folders, ING allows sub accounts that you can move money between. We have our emergency fund, car savings, house repair savings, x-mas savings, etc in sub accounts there. For checking account "folders," check out Mint.com, Quicken or Wesabe. All let you categorize debit card expenditures to better track your spending.

Thanks for that!

DP's company matching for 401k is crap so that doesn't really matter. I think it's like they'll match 25% of whatever you put in up to 3% of your gross pay. So basically if you put in 3% of your gross pay, they'll match a quarter of that :

[spring978]

I Would take half of it and continue putting in it in savingstrying to get a 3-6 month emergency fund and use the other half to pay off the car.