Money Matters

Money is always a touchy subject.  People don't really talk about it.  I'd like to think its because we don't want to risk hurting someone else's feelings or put them in an awkward position, because the fact of the matter is, you really don't ever know someone else's money situation, unless they offer to tell you.  But I have questions and I need answers.  So where to turn?

I have a few friends that are following Dave Ramsey's "Seven Baby Steps" and it seems to be working well for them.  I've looked at the steps and considered following that route, but I always opt out because we've accomplished some of the steps but not others and I feel confused if we've done them out of order - I think part of his plan revolves around "the order" of the steps.

Step 1 - Save $1000 in an Emergency Fund - check

Step 2 - Pay off all your debt using the debt snowball - um, yea.  Where do we start?  The debt snowball says to start with your smallest debt first and then work your way up, but I just can't agree with this approach.  My favored approach is to look at all the interest rates and start paying off the highest one first.  Also, not all our debt is "bad debt" - i.e. law school loans.  Although, we have enough of them, that I feel like they're BAD!

Step 3 - 3 to 6 months of living expenses - not exactly.  We're working on month 2...

Step 4 - Invest 15% of household income into Roth IRAs and pre-tax retirement - check.  Been doing this for 2 years now.  Though we did empty Mr. Cob's IRA to help with the purchase of our home.  But I've got a pretty good chunk in my 401K.  But if I'm following "The Baby Steps" should we stop putting money into the IRA and 401K and instead use the money to pay off the debt or save for the living expense?  I don't know.  There's no *footnote* telling me what to do if my steps are out of whack.

Step 5 - College funding for children - no kids yet, so is this really necessary?

Step 6 - Pay off home early - R-I-G-H-T....lets work on those law school loans first.

Step 7 - Build Wealth and Give - this is the ultimate goal.

So, ok, this is a good blueprint and I keep it in the back of my mind - maybe we'll officially jump on board here soon.  But here's my question, assuming we're not following the Baby Steps (or even when we are): What money should I use for what?  For example, we have a family wedding to go to in April that will cost roughly $500 just to get to.  Do we take this $500 out of our monthly expenses or take it out of our "savings account"?  Or does it qualify for use of the "emergency fund money" [sidenote: it is really just semantics that we are talking about here since our emergency fund money is just the first $1000 in out savings account].

I'm really making a concerted effort to watch my/our spending in 2010.  I vowed not to buy any clothes in January and I succeeded until Friday, January 29th - I just bought a $20 dress, so it's not that bad.  Still, did I need the dress, no.  I did feel pretty wearing it though!  And both Mr. Cob and I are brining our lunch to work most days and cooking dinners at home = saves money on eating out, which is our biggest offender.

I do feel like I'm really hard on us, because we would be doing really well if we hadn't had to drop thousands of dollars on a new roof.  But there are always going to be "life" expenses that get in the way of saving money and paying off debt - you just have to keep going.  My goal is to be credit card free by June 1st, 2010.  (We put the roof on our credit card...)  And then I think we'll reevaluate.

I did make one big change this month - the day we got our paychecks I immediately put a huge chunk towards our credit card.  I typically wait until the end of the month and just use whatever money is left in our checking account to pay our cc.  This is not the most proactive approach.  Let's just hope there's enough money left over at the end of the month for food.  I'm not really in a Top Ramen sort of mood.

Did I mention that I was a finance major in college?  I should have this money thing figured out.  Don't judge.