I just wanted to give everyone a quick update on our financial journey. We were stoked to finally pay off Tori’s $80,000+ of student loans just a few short months ago. We knew that wasn’t anywhere near the end of the road. The first thing we did was increase our retirement investment amounts, but after that we knew we still had some major legwork to do to get our finances into tip top shape.
We quickly set a financial goal of saving six months of expenses in our cash emergency fund. We did have a smaller emergency fund while we were paying off Tori’s student loan debt, but we used a tiny bit of that cash to help us pay off Tori’s loans.
We felt that, as part of our next step on our financial journey, we needed to top off cash emergency fund to 6 months of expenses before we started working on some of our other financial aspirations. After all, emergency funds provide great peace of mind that you’ll be OK financially for a few months if something horrible were to happen. That comfort would help us sleep at night!
I’m happy to announce that we recently fully funded our 6 month cash emergency fund. We were able to continue using the momentum from our debt pay off to fill the emergency fund. Since we were so used to spending such a small percentage of our take home pay, we simply continued living like we had been while we were paying off the debt to fill up the emergency fund.
We did splurge a little bit here and there but now that the debt was paid off we felt comfortable spending just a little bit more money. One key to our quick success was that we made sure we didn’t commit to any new recurring expenses and we didn’t make any large purchases. Those types of decisions had to wait until we filled up our 6 month cash emergency fund.
So, what’s next for us now that our 6 month cash emergency fund is full? We like having our full cash emergency fund, but ideally I’d like to have a little bit more cushion to feel comfortable. The problem is, I don’t like the idea of having more than 6 months worth of expenses in cash due to the fact inflation will slowly devalue our cash.
We decided our next step is to invest 6 months worth of expenses in investments! That will give us 12 months worth of expenses in total which I’d be much more comfortable with. Of course, the value of our investments will fluctuate, but I intend to continue investing even after our 6 months of expenses in investments is complete. Eventually, even if there is a 50% drop in the market, we’ll still have at least 6 months of investments in our taxable investment account. However, that’s a much longer term goal.
The question is, how quickly do we need achieve our goal of having another 6 months of expenses in investments? That’s what we still have to decide! We’ll probably still work pretty aggressively toward this goal, but we’ll probably start to allow for a bit more leeway in our finances. We do have other things we’d like to do with our “extra” cash flow, like decorating the house, putting up a fence in our back yard and taking a vacation or two this year. Now that we’re out of the woods and we have our six month cash emergency fund fully funded, I think it’s time we add just a little bit more balance to our financial lives!
What would you do if you were in our position? Would you continue living our current lifestyle and put off the other things we want to do to finish our 6 months of expenses in investments? Or would you loosen up the belt a little bit and get some of your other goals going?
Image courtesy of newleoforex.