Planning now for saving next year
I like to plan ahead. That's why even though I won't be credit card debt free until next February, I'm planning what to do with the extra money right now, in fact I'm working on a five year plan at the end of which I'd like to be able to buy some type of house. I have several things I want to do with the money, max out my IRA contribution yearly, get an emergency fund all saved up, save for a house, and save for retirement. Thats a lot of saving to do! I will have an extra $1000/month starting in March and then when my car is paid off in November that will go up to $1243.
Today I've been trolling the web looking for information on not only how much of an emergency fund I should have, but how much should I be setting aside each month right now. Based on the comments at this post about savings goals from NCN I've pretty much decided on an emergency fund of 5 months rent, plus 3 months of expenses which came to $6900, but I rounded it up to a nice even 10k. That way my emergency fund is covered in case of emergency. I'm only saving 6% of my take home pay every month, better than 5% but I would like to get it up to 10%. And I have a confession: I haven't contributed anything to my Roth IRA since last May. I was doing monthly contributions, but I stopped them in order to put that money towards the debt. sigh...
Question: emergency fund first or max out IRA? Or does the money in the IRA count as part of the emergency fund? I'm thinking the IRA money should count towards retirement and not the emergency fund.
Right now I have 3k in savings, next March when the 5 year plan starts, that should be up to $4560 barring any emergencies between now and then. So if my year one plan is to max out the IRA and emergency fund I will need to save $9440 next year. I should be able to do that in 9.5 months, which means I should have money left to blow in Vegas!!! ahhhh, Vegas! Of course this is all wishful dreaming for now, the scariest part about saving for an emergency fund is that you are contingent on an emergency not happening while you are saving!
Whilst I was surfing today, I found this site called Choose to Save. its sponsored by the Employee Benefit Research Institute and is full of calculators, savings tips, and a retirement planning worksheet.