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That money in savings should be in a mutual fund of some sort. You are earning extremely low interest in savings. The earnings on a well selected mutual fund will be significantly higher. You can set those up so you invest a set amount every month. It's called dollar cost averaging.
The emergency fund should be in cash or easily breakable CDs or equivalent.
Kids' savings can be in mutual funds / stock ETFs IF you don't mind the occasional 25% dip in the principal value. Over 7-8 years (when they turn 18) they would probably not lose value and have much more of an upside than a savings account. But this route is not for everyone and if you want to leave just cash, that's OK too. Or consider savings bonds, currently paying 1.84%, money is locked up for a year and you lose 3 months interest if you withdraw before 5 years. Absolute huarantee of the principal. If rates go up and you buy I-series savings bonds, then interest rates will go up automatically (they are linked to inflation.)
Last edited by knighttof3; 10-30-2014 at 06:56 PM..
Reason: typo
Wouldn't the medical bills have come under the heading of "emergency" and should they not then be paid by funds in your emergency account?
No, for us "emergency" is "layoff" - my husband and I have BOTH experienced layoffs and it threw us for a total loop when it happened. When I got laid off in 2009 we DIDN'T have an emergency fund and struggled as we cut out all non-essential spending and even some essentials. It took me 11 months to get a new job - during that time I did freelancing whenever I could to make unemployment last as long as possible. It was a tough time for our family although we came through it. We now hope to eventually have 12 months of living expenses saved up so that if he (as the main breadwinner he makes nearly twice what I make) gets laid off, he'll have 12 months to find a job before we feel the hurt.
So no, medical expenses would not be what we consider an emergency.
I put in for the balance transfer, as I said yesterday. Once it goes through I may just go ahead and use the savings and pay it off and be done with it.
As for how we're saving the kids' money, I do know that there are better ways to save money for the kids that will yield higher returns. But I'm not very concerned with how much they'll have in the accounts when we turn them over. That's why I only put in $15/month most of the time. If I really wanted them to have a huge nest egg I'd put in way more each month AND have it be in something that can maximize the money I'm putting in. I'm perfectly content with it just being in a savings account.
If I were in your exact situation I would probably follow your approach of using the savings to immediately pay off the CC, then paying the CC payment into your kids savings fund to build it back up again and hope I didn't get sick again.
One option
Take your kids school savings and invest it in a fidelity or maybe a 529 etc. Speak to a investment guy. Now if you're making minimum payment on that CC you're wasting your time. You need to at least double if not triple or quadruple that
Option two
This is a bit harder
Pay off CC with kids/car savings. Then RELIGIOUSLY put that money back. I would still invest the money rather than keeping it in a savings account.
I'm not really crazy about keeping a CC with 13% interest. Can you transfer balance to another cc with lower interest?
Have you tried calling CC and see if they can lower the interest rate? If you can I would still pound down thwt principal
I can probably answer the first question for you. It sounds like OP is paying the minimum based on posts. That means paying $300 per month based on a 2% minimum(pretty standard for CC's, though it comes in tiers).
Of that, $162 per month is being wasted on interest(assuming 13%). OP's idea of moving doing a 0% balance transfer is a good one.
No return in the world will ever come close to 13% guaranteed.
OP has the right mindset at this stage. Either A) take cash and kill the debt, then replenish, or B) do a no fee 0% balance transfer. Either is good.
If you want to maximize return:
1) do the balance transfer today
2) pay down the balance in a lump sum once 0% runs out
3) while the balance is out there, put the money in an interest generating account(ally or any of the other close to 1% account)
I disagree with the idea of moving the savings to a 529. That's not the right move because you will never beat a CC rate of return by investing. You have a guaranteed 13% rate of return by paying down your CC debt. I would throw every couch penny I found at that, because NOTHING will ever beat that rate of return.
I respect your desire to help your kids, but you can help them so much more by being financially secure.
We have about $13K in two savings accounts that I set aside for our kids. who are 10 and 11 years old. Each month I put in $15 each account. Sometimes I'll put in a bigger deposit, say $200 or $300. Other than the deposits, we don't touch the accounts. The plan is to give the kids these accounts when they turn 18 to use as spending money should they decide to go to college. If they do not go to college, whatever is saved up will be used to help them move out at the appropriate time and get started with their own life.
The problem now is our credit card debt. We have about $15,000 in credit card debt that we are very slowly paying off. Interest rate is 12.99%.
I recently came up with the idea of applying the $13K in the kids' accounts and $2K from our emergency fund to pay off the credit card debt completely. My thinking was that we could then put the money we're spending each month to pay the credit card bill back into the kids' savings accounts, in addition to the $15 per month that I already put in. By my calculations, the kids' accounts would be back up to their proper levels in just under three years - several years before we are handing over the accounts to them.
We save up the vacation funds and once we buy the plane tickets or book the hotel we immediately use the funds to pay the credit card off. Then we pay cash for everything while on vacation using the money in the vacation savings account.
This is what I would do.
Use the vacation account and what I need from the kids account to pay off the credit card and skip going on a high dollar vacation that would require plane tickets, drive instead. My last 4 vacations were to my hometown in Maine 1200 miles away, I drove every time. What you would save in interest will make a big difference. You could make up what you took from you kids accounts very quickly.
You should start listening to the Dave Ramsey radio show, he is well worth listening to if you need to straighten out your finances.
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