Retirement, college fund or emergency fund?

[Clarabelle]

Thanks to DisneySteve for pointing me to this site from the Dis.

I recently received about $20k from the sale of property from my first marriage and am not sure just what to do with it. I don't currently have any type of retirement for myself (DH is active duty military and plans to do his 20 years and draw his pension) so we have discussed putting the bulk of this money away for that after establishing an emergency fund. How much of this should we put into an emergency fund?

My oldest daughter is 16 and has 2 more years of high school before entering college. She will graduate in 2 more years from a GA high school and can benefit from the Hope scholarship program which pays a good portion of tuition to a GA college. At this point in time she has lofty ambitions of attending Northwestern or Boston University but we are hoping she changes her mind to take advantage of the GA schools. We currently have about $2600 in her 529 college fund.

Our next child has 6 more years until college. We will not be living in GA at that point so we will most likely need more money for her college fund than we did for the oldest. She also has $2600 in a 529 college fund.

DH and I are currently snowballing what credit card debt we do have but I know that needs to be paid sooner than later.

We are at a loss of how much to put where. DH is an Army officer and makes a decent salary. I have been out of the workforce since my youngest son (now age 3) was born but have supplemented our income with ebay, craigslist and consignment sales.

Any advice is greatly appreciated.

Thanks!
Kelley

[jIM_Ohio]

Thanks to DisneySteve for pointing me to this site from the Dis.

I recently received about $20k from the sale of property from my first marriage and am not sure just what to do with it. I don't currently have any type of retirement for myself (DH is active duty military and plans to do his 20 years and draw his pension) so we have discussed putting the bulk of this money away for that after establishing an emergency fund. How much of this should we put into an emergency fund?

My oldest daughter is 16 and has 2 more years of high school before entering college. She will graduate in 2 more years from a GA high school and can benefit from the Hope scholarship program which pays a good portion of tuition to a GA college. At this point in time she has lofty ambitions of attending Northwestern or Boston University but we are hoping she changes her mind to take advantage of the GA schools. We currently have about $2600 in her 529 college fund.

Our next child has 6 more years until college. We will not be living in GA at that point so we will most likely need more money for her college fund than we did for the oldest. She also has $2600 in a 529 college fund.

DH and I are currently snowballing what credit card debt we do have but I know that needs to be paid sooner than later.

We are at a loss of how much to put where. DH is an Army officer and makes a decent salary. I have been out of the workforce since my youngest son (now age 3) was born but have supplemented our income with ebay, craigslist and consignment sales.

Any advice is greatly appreciated.

Thanks!
Kelley

Priorities

1a) Retirement
1b) debt

logic: the pension will probably not be enough. Consider changes in housing costs, lack of base spending (some things on the base are much cheaper and you would not have access to those when retired). The debt needs attention too.

2) Emergency fund
3) Education for the older child
4) Education for the younger child

Problems I see:
20k is not going to make any single problem go away, except possibly the debt in 1b

So I would do the following

1) Work thru a budget and make sure you only spend 80% of gross pay
2) with the 20% extra, put 5% to a retirement fund, 5% to emergency fund (short term savings), 5% to college for child 1 and 5% to college for child 2.
3) Start doing college financial planning NOW by doing some or all of the following:
a) fill out a federal financial aid application (do not turn it in) and see what items are included on the form
b) fill out a worksheet for the hope credit and see what expenses qualify (if 529 monies are used, you do not qualify)
c) sit down with BOTH kids and explain your parental and financial opinions on college
for example
1) Both kids get same amount to college
2) Both kids get college 100% paid for by parents
3) Parents will put contraints on kids college, and if child exceeds contraints, then they pay beyond the constaints

You need to do all of these steps (1-2-3) at same time before making any decisions on any of the steps.
Your spouse and yourself need to discuss your opinions for c) before discussing with kids.

Here is why-
Child 1 is getting screwed. As a middle child myself, if my parents told me I had to go to school A, but my little brother had a blank check to go anywhere, there will be problems brewing and festering.

My thought is tell each kid they will have 10k for 4 years of college. That could be $2500 for 4 years, $5000 for 2 years or 10k for one year. Explain what the hope credit is, and help them realize that about doubles the amount for freshman year ($2500 becomes about $5000). They are dependant upon parents qualifying for the credit, so help them understand what expenses are supported for the credit.

It will be easier to save $10k for kid 2...
for kid 1 (older kid), the 5% college contribution and 5% deposit to savings might need to be combined to reach 10k total contributions in 6 years (2 years of HS and 4 years of college).


I don't know income... if you live on 80% of gross pay now, and then pension kicks in 60% of gross pay when you retire, your retirement savings only needs to replace 20% of what you spend (which is why I suggested only 5% to retirement).

I don't know income, so I have no idea how liong 5% going to savings will create an emergency fund of 3 months expenses.

I don't know income, so I have no idea how long it will take 5% to reach 10k of college savings.

I would also advise that all 529 monies for oldest child be put in savings or CDs or cash based investments. You do not want to see $2600 turn into $1300 within next 2 years.

[Like2Plan]

Thanks to DisneySteve for pointing me to this site from the Dis.

I recently received about $20k from the sale of property from my first marriage and am not sure just what to do with it. I don't currently have any type of retirement for myself (DH is active duty military and plans to do his 20 years and draw his pension) so we have discussed putting the bulk of this money away for that after establishing an emergency fund. How much of this should we put into an emergency fund?

My oldest daughter is 16 and has 2 more years of high school before entering college. She will graduate in 2 more years from a GA high school and can benefit from the Hope scholarship program which pays a good portion of tuition to a GA college. At this point in time she has lofty ambitions of attending Northwestern or Boston University but we are hoping she changes her mind to take advantage of the GA schools. We currently have about $2600 in her 529 college fund.

Our next child has 6 more years until college. We will not be living in GA at that point so we will most likely need more money for her college fund than we did for the oldest. She also has $2600 in a 529 college fund.


DH and I are currently snowballing what credit card debt we do have but I know that needs to be paid sooner than later.

We are at a loss of how much to put where. DH is an Army officer and makes a decent salary. I have been out of the workforce since my youngest son (now age 3) was born but have supplemented our income with ebay, craigslist and consignment sales.

Any advice is greatly appreciated.

Thanks!
Kelley

Will your DH be able to transfer any of his GI Bill educational benefits to any of your children? Transfer of Post-9/11 GI Bill Benefits to Dependents (TEB)

If your DH qualifies, he can split up the benefits between the kids. Also, I have heard that some of the schools offer additional benefits (ex--child pays in state tuition rates). This is an awesome benefit.

I can't tell with the info provided how much you need for your emergency fund (it depends on your expenses). I think a retirement account would be a very good idea. Roth IRA (if you qualify) would be a great place to start.

[Like2Plan]

Here is a link to info on the Military Pension plan:

The Military Retirement System

Link to a High-3 Retirement Calculator (I'm not sure which retirement system your DH will retire from as that is determined by when he entered the service, but this will give you an idea).

High-3 Retirement Calculator

This might give you an idea for planning purposes. The pension will do a lot of the heavy lifting for your savings, but you will still have to save for retirement unless you live off of a small portion of your current income. The basis for the pension is off of base pay only.

[Charles@moneygreenlife.co]

I agree with Jim_Ohio. $20k will be most beneficial paying off your debt, especially if your debt is credit card debt. You will save more from not paying interest from the debt than earning interest saving it anywhere else.

[snafu]

Have a look at the Ramsey debt reduction system. Understand that this only works if you STOP using credit cards. Interest rates will soon escalate as the government will be unable to intervene.

[Clarabelle]

Thanks for all of the input.

To answer a few questions - yes, DH does have the GI Bill benefit but we have not decided how to use that. I may go back and finish my degree once we move this summer to a new post and had discussed using it for that. I'm not sure that it can be split between multiple people other than the service member and 1 dependent but will look into that. We have 5 children total but the others are preschool to elementary school age so we are most worried about the oldest 2 right now. DH's 2 children from his previous marriage live in a state that provides free tuition to state colleges so out of pocket expenses there would hopefully be much less than the older 2 (or so we hope!). Our youngest is 3 so we have a little more time to figure that one out. I do like the idea of giving each child the same $ amount and let them decide where to go to school knowing how much they have coming from us and knowing they need to make up the difference with jobs or student loans. That does sound much more fair.

Thanks for the info on the 529 accounts - will look into switching that over to another type of account.

DH plans to work for another company - perhaps as a government civilian - after his military retirement since he will only be 43 years old. Ideally he would like to put in another 20 years with another job and draw a pension from there as well if possible.

We do spend more than 80% of our gross income currently since I have not been working. DH and I are going to go over our budget and see what areas we can trim down. Your posts have motivated me to spend the rest of the weekend listing on ebay and Craigslist.

[Clarabelle]

Have a look at the Ramsey debt reduction system. Understand that this only works if you STOP using credit cards. Interest rates will soon escalate as the government will be unable to intervene.

We are currently snowballing all of our credit card debt but are hitting the highest interest ones first instead of the smaller balances like Ramsey recommends. We only use debit cards now except for travel related expenses or large purchases (anything that we could possibly need to dispute later - learned that the hard way when we paid for a hotel on our debit card, had issues and lost the dispute and $226) and pay off any new charges as soon as the bill comes in.

[disneysteve]

We are currently snowballing all of our credit card debt but are hitting the highest interest ones first instead of the smaller balances like Ramsey recommends.

Welcome to the site. I'm glad you came over. You'll find lots of helpful advice here.

Snowballing by interest rate is the financially better way to do it. Dave Ramsey's way absolutely works but is intended for folks who need to see fast results to keep motivated to stay on course. If you are able to stick to the program without that psychological push, your way will save you more in the long run.

[jIM_Ohio]

Thanks for all of the input.

To answer a few questions - yes, DH does have the GI Bill benefit but we have not decided how to use that. I may go back and finish my degree once we move this summer to a new post and had discussed using it for that. I'm not sure that it can be split between multiple people other than the service member and 1 dependent but will look into that. We have 5 children total but the others are preschool to elementary school age so we are most worried about the oldest 2 right now. DH's 2 children from his previous marriage live in a state that provides free tuition to state colleges so out of pocket expenses there would hopefully be much less than the older 2 (or so we hope!). Our youngest is 3 so we have a little more time to figure that one out. I do like the idea of giving each child the same $ amount and let them decide where to go to school knowing how much they have coming from us and knowing they need to make up the difference with jobs or student loans. That does sound much more fair.

Thanks for the info on the 529 accounts - will look into switching that over to another type of account.

DH plans to work for another company - perhaps as a government civilian - after his military retirement since he will only be 43 years old. Ideally he would like to put in another 20 years with another job and draw a pension from there as well if possible.

We do spend more than 80% of our gross income currently since I have not been working. DH and I are going to go over our budget and see what areas we can trim down. Your posts have motivated me to spend the rest of the weekend listing on ebay and Craigslist.

Do not move existing monies out of the 529. Maybe stop contributions... or look for other solutions.

You need to have a macro look at finances.

Make sure you spend less than you earn
Make sure you can save about 20% of gross pay, regardless of income level

once you make that work at 20,000 foot level... move down to 10,000 foot level and focus on details.
With 5 kids, the college funding issue is more complex, you cannot delay saving for a 3 year old... 15 years will sneak up on you, considering you will be paying for second oldest education in 10 years, so you might only get 5 years to save for the youngest.

Here is my alternate suggestion
do NOT save in advance for any college education, and only pay cash in the year tuition is paid for tuition. If you don't have the cash, then the kid takes a loan for the bill.

In the mean time, set goals like this
a) paid off mortgage
b) retirement accounts (Roth IRAs) maxed every year
c) increase household income by you getting a degree

I could probably come up with numbers where spending 10k-20k on your own education and earning $400k over next 13 years is better than saving $50k over 15 years for college for 5 kids.

The use the cash you earn to fund education for all kids (while still saving 20% of gross and paying down mortgage).

[jpg7n16]

I recently received about $20k from the sale of property from my first marriage and am not sure just what to do with it. I don't currently have any type of retirement for myself (DH is active duty military and plans to do his 20 years and draw his pension) so we have discussed putting the bulk of this money away for that after establishing an emergency fund. How much of this should we put into an emergency fund?

...

DH and I are currently snowballing what credit card debt we do have but I know that needs to be paid sooner than later.

Well if you have any debt that's over 8% interest, I'd put it all towards that debt 1st. If that means $0 to the EF, then put $0 to the EF.

And I know the reasons behind the DR snowball, but I'd put as much as possible to the highest interest rate debt like you've been doing. The snowball method of low balance to high balance is the best way to change debt behaviors - but if you've already changed those behaviors, high interest rate to low interest rate saves the most money.

How much is your EF right now?
How much debt to have left to go?

As far as your kids going to college, maybe you can use your debt situation as a learning lesson for why incurring a lot of debt to attend an out of state school isn't a good decision. The schools in GA are good schools, and will help get a good job.

Plus like Jim was saying above, you may need to cut back spending in other areas too.