In January, the COMPASS blog is focusing on changes and resolutions related to personal finances. As part of this series I invited Grace Duddy Pomroy to share her thoughts. You might remember that we have heard from Grace before last fall in this first and second part of a two-part conversation. Enjoy Grace’s thoughts! -Timothy
Hello COMPASS readers! Timothy asked me to join in the conversation about New Year’s Resolutions on the blog. My husband and I have been married for about four months and we recently bought our first house. As I think about our resolutions for 2015, a big one for me is organizing our financial life. I recently wrote a blog post on how to organize your financial life on my blog Classy Frugalist, which really opened my eyes.
When my husband and I got married, we combined our money. I created a budget for us that included savings, giving and debt repayment. We are confident and secure about where our money is going day to day, but we have yet to really make a plan for our longer-term goals. Here are a few things that I would like to get organized for next year:
Debt Repayment Plan
The biggest thing that I would like to do is make a plan to repay our debt. Both my husband and I brought educational loans into our marriage. Currently, we are doing just fine paying off the minimums on our loans plus a little extra when we can. I want to spend some time putting all of our different debts on the table looking at the total balance and interest rate on each one. I also want to look at the different available repayment plans and make sure that we are using the most beneficial system. My goal has always been that I would repay my student loans back in 5 years instead of 10. That may be a bit ambitious, but I would like to put together a repayment plan that gets out of debt as quickly and efficiently as we can.
Short and Long-Term Emergency Fund
I recently read about the difference between a short-term and long-term emergency savings. Ever since graduate school, I have had an emergency savings fund that I have grown and used as I have had occasion to. I never realized the value of having two separate funds. Your short-term emergency savings fund should be close at hand and generally a small amount. This money can be used for things like the deductible for your auto and homeowner’s insurance, cost of an appliance breaking, money for a medical expense, etc. (Generally somewhere between $500-$3000 depending on your life circumstance.) This should be kept close at hand, likely in a savings fund, to be used when needed.
Long-term emergency funds should include enough money to pay for 3-6 months of expenses just in case you or your partner or both lose your job. This money could be kept in an investment account: just make sure that it is fairly easy to access if needed for a larger emergency expense. I think that it is brilliant to have two separate funds rather than just one. When you are growing an emergency fund initially, the short-term fund seems like a much more reasonable goal. Once you achieve that, you can begin building the long-term fund over a longer time period. I want to create a solid estimate for both funds in our family budget and continue building them.
Savings have been a huge learning area for me since graduate school. My husband and I are now a part of a credit union that allows us to have separate savings funds for different goals. Currently, we have four: an emergency fund, a puppy fund, a travel fund and one to save money to pay taxes annually for the contracted stewardship work that I do. I would like to grow my savings fund to be able to add a fund for Christmas/birthdays and a fund where we save for a few things that are more fun. I also want to make more of a plan for our travel and fun fund so we have some specific goals in mind.
Adjust to New Expenses
Since we are entering into a new housing situation, we will need to adjust for new expenses. Our monthly housing payment is a little higher than our current rent cost. We will also have higher expenses for utilities and incidentals. We will need to take a few months to adjust our budget to these new expenses.
Putting It All Together
In getting organized, I am most excited to put everything together. I want to take a look at our values and where our money is going over the long-term. Which things should be a priority for right now? Should we invest more in debt repayment or building up long-term emergency savings? What types of things will we save up for in our travel and fun funds? How will we handle additional money that we receive (tax refund, bonuses, side work, etc.) – how will that money be divided amongst our priorities?
Happy New Year Compass Readers and best wishes on your resolutions for 2015!
About the Writer: Grace Duddy Pomroy is Executive Director of Operations at Kairos and Associates, and previously served as Assistant Director for the Center for Stewardship Leaders and Luther Seminary. She is author of “Stewards of God’s Love,” recently published by the Evangelical Lutheran Church in America. She blogs regularly and you can follow her on Twitter.
This blog is a component of the Ecumenical Stewardship Center’s COMPASS initiative to engage young adults in conversations about faith and finances. Like what you see and want to know/do more? Visit the COMPASS web page and join the COMPASS community on Facebook.
Image Credit: New Home