My union negotiated a small increase for us in July, and we are now seeing our retroactive pay (the raise was negotiated to start as of January 2008). I received my electronic paystub yesterday, and it appears that my January-August pay increase amounts to about $1,000, after taxes!! Although my monthly income will increase by less than $130, anything is better than nothing in this precarious economy.
As for that $1,000, what do you think I'll be doing with it? Buying new clothes? Downpayment on a new car? A trip to California? Nope, nope and nope. I'm going to send all of it straight to my credit card debt, meaning that by the end of next week, my credit card balance will finally amount to less than $1,000---in fact, it will be just over $500!!! This means that by the end of November at the latest, I should finally have my credit card paid off.
Now, here's my dilemma: remember when my union was considering a strike, and I decided to send more money to my emergency fund, "just in case"? Well, I now have a bit over $1,600 in my EF. Dave Ramsey says I should have $1,000 stashed away for emergencies, until my debt is paid off. I'm considering using $300-$400 of the funds in my EF to pay my credit card debt down even further, which would allow me to be credit card debt-free by the end of October!
What do you think? Unless a huge emergency occurs in the next two or three months, I should be covered---I'll be able to start building my EF up even higher after the credit card is paid off, and have no credit debt would be phenomenal!
Thursday, September 25, 2008
A frugal increase. . . . .
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4 comments:
I did that... got a windfall that I initially thought would go to EF (balance then about $1200), then paid down CC instead. Interestingly, right after I did that, I was hit by a mini-emergency (tires). For a fraction of a second debated about using CC (HATED the idea of touching EF despite its name) then marshalled my self-discipline and used EF. What makes it interesting? A week later I received another windfall that replaced funds in the EF almost exactly! Who says there's no such thing as karma?
Congrats on the smart move with the newly found money! WhooHOO!
Is $1000 in the emergency fund enough? You need to have a couple-3 months expenses tucked away, in my opinion. Not just the $1000 that Dave says to have... I think $1000 is a minimum, depending on your monthly bills. For me $1000 does cover 3 months of monthly bills - no debt - so it would be enough.
There are 2 schools of thought about that remaining credit card debt. One is to leave the emergency fund in place in case of a real emergency, and keep working on the credit card as much as you can.
The 2nd is to get rid of the credit card as soon as you can, regardless, as that frees up that much more monthly payment in case an emergency takes place. PLus there is that psychological boost of having it paid off. And of course once you get the card paid off, that's that much more to go into your emergency account :)
When you put it on paper, you are only looking at a month's difference either way... so you should probably trust your gut instinct and do what feels right to you, and best to you. Someone else can't tell you what's right for you :) Good luck! And nice move with the extra $1000!
You can't go wrong here. But I vote for keeping with your original plan. $1000 isn't a very big emergency fund, and huge (or multiple) emergencies can happen at any time. And you will still have your credit card paid off by the end of the year and maybe even by Thanksgiving!
Since you are really psyched about paying it off completely, you could use that energy in some other way. You could think of some purchases you could reduce, substitute, or put off to get the extra money.
It's kind of exciting to do some kind of crazy lack of spending for a month or two for glorious victories like this! I don't know what your current spending is like, but usually food can be reduced somehow (no eating out or no processed foods or only very low-cost foods like beans and rice and peanut butter). And since it's only for a short time, it's okay if you start to get sick of it.
What a nice dilemma to have! I would be tempted to use part of the emergency fund to pay the card off early. You seem to do a very good job of planning ahead for expected expenses. I agree with Marci that you should trust your instincts. Congratulations!
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