Sunday, December 12, 2010

Student loan payoff and emergency fund goals

If you click through to my main page, you will see two sidebar trackers for our big savings goals: student loan payoff and emergency fund. This is where all of our savings and focus is going from now on.

Because Peanut is self-employed, we feel the need for a big fat emergency fund. We settled on $25,000 somewhat arbitrarily -- it's a nice, big number, but it would also keep us afloat in conjunction with my job for a very long time, and for nearly a year even if we lost my income entirely. That's a nice safety net. With a few small sinking funds for gifts and travel, we're at $22,695 in that fund right now. All savings efforts will go towards beefing that up to $25,000 before taking on our second goal: student loans.

We're currently paying minimums towards our student loans every month. Our goal is to pay them down as fast as possible, ideally within one year. Once our emergency fund is fully funded, we will continue paying minimums on the loans while saving to get enough cash to pay them off in one fell swoop. The way things are going, that date will probably happen sometime next summer.

It would also make sense for us to just pay extra towards the loans each month. However, we're in an interesting kind of financial limbo right now -- Peanut is freelancing but is open to taking a salaried position if the right one came up. The right one, though, is probably located on the other side of the country where my industry hardly exists. There's also the possibility that we'll be moving somewhere in the middle of the country within the year, in order to settle in a family-friendly environment before we start trying for kids. Either of those possibilities means we'll want to have a lot of cash on hand, so it makes us more comfortable to give up a few hundred bucks in interest in order to build our cash reserves before paying off those loans. We can afford to go on paying minimums for a long time on just one income and our interest rates are low so while it's not the most financially smart move, it's not a terrible one either.

Once the loans are paid off, we'll have $25,000 in cash and no obligations at all, so that $25,000 is plenty for us to do anything we want: move across the country, quit our jobs and sit on the beach for a year, try for a baby. What an awesome thought -- and it's almost within our reach!


  1. This is awesome news! Congratulations on all your hard work so far, and best of luck getting to $25k and $0k, respectively!

  2. How much more will you have to pay in interest since you are only paying the minimums? Do you know how much that will cost you? I like your agressive goals for more cash flow!

  3. We did figure it out at one point -- let me see if I can recreate it. We have an average of 6.06% across four loans. It would be something like $1,900 if the balance never changed over the next year. But of course it will change -- two of them will be paid off by minimums anyway before we get to the point of having the full payoff amount so we can't count those for the full year, and the balance on the other two loans will go down, thus lowering the total interest. Plus I will get a $250 rebate after making on-time payments for one year (which will be sometime next summer).

    All told, the difference should turn out to be less than $1,000.

  4. I know you like the $25,000 round number, but did you also figure out how much you spend each month and divide that $25,000 into it?

    E.g. if you spend $3000/month then the $25k will last about 8 months.

  5. We did -- if Peanut wasn't able to bring in freelance work, we could live off of my income alone and not touch it. If we both lost our jobs, we'd put our student loans into deferment and our hard costs would be a little less than $2,000 a month, making that $25,000 last for almost a year.


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