Remove Auto Debt or Increase Savings?

[darrell2525]

hank you all for the response, really appreciate it.

I decided to do the following:

1. Max out both ROTH IRA every year. This way I can start this retirement account and get it growing.

2. Take the extra savings per month and save for another 6 months for some minor house needs, car repair on wife car, mini vacation, job certification, etc. You know the typical around the house fix ups and other things. And the taxes to cover the Roth IRA contributions.

3. Make sure my Emergency fund is solid 6 months, move to money market (need to read boglehead wiki to see what to do with this.)

4. By May 2013, start sending the extra savings (double payments) to car loan to have paid off in next 2 years, instead of the next 3 years.

5. After car loan is paid, instantly start maxing out 401K up to government limits.

6. After maxing out 401K to limits, start savings for next cash car or just saving in general.

Let me know what you think. This paying off debt and figuring ways to fill tax deferred account is becoming addictive and wish I could just pay that car off right now. Wish I started this process earlier instead of spending so much time with stock picking investing. Live and learn for sure. Picking stocks is a waste of time.

[flyonpa]

Only thing I would change is 5.

After the car loan is paid, I would start a "new" car fund so you can get out of the loan cycle. Your goal is to save enough every 4 year to get replacement car "loan" free, so you can replace your cars every 8 years.

Are Kids in the plan? You might want to look at 529 college plans, The internal growth in the plan grow tax free, and is not taxed on the federal level (and most states) when you pull it out for covered college costs. If your kids don't go to college, then you can pull it out and just pay the tax on the gains. Also you can make anyone the beneficiary of the 529, your 'grand kids', your nieces/nephews. (not sure but you can probably make complete strangers the beneficiary).

Personal I don't like putting more into 401K past the match. But some people do. Because it comes out of your paycheck before you get a chance to spent it else where.

[darrell2525]

Originally Posted by flyonpa

Only thing I would change is 5.

After the car loan is paid, I would start a "new" car fund so you can get out of the loan cycle. Your goal is to save enough every 4 year to get replacement car "loan" free, so you can replace your cars every 8 years.

Are Kids in the plan? You might want to look at 529 college plans, The internal growth in the plan grow tax free, and is not taxed on the federal level (and most states) when you pull it out for covered college costs. If your kids don't go to college, then you can pull it out and just pay the tax on the gains. Also you can make anyone the beneficiary of the 529, your 'grand kids', your nieces/nephews. (not sure but you can probably make complete strangers the beneficiary).

Personal I don't like putting more into 401K past the match. But some people do. Because it comes out of your paycheck before you get a chance to spent it else where.

Thank you flyonpa,

Yes we do have a daughter to help with college in the next 7-8 years. So what you state make sense, we may have to delay maxing out 401K to government limits until we get more money saved and contribution something to 529 plan.

Yes, saving to buy car cash is much better than asking for loan and paying notes.