When I had a more secure job, we lived on the financial edge. For us, living on the edge didn't mean we were going on spending sprees at Tiffany's or paying bills late. Our risky financial habit was making debt repayment a priority without having an emergency fund. After watching so many friends and colleagues get laid off in the past 5 years, it's become crystal clear that liquid savings is essential. It's been more difficult than I expected to overcome my desire to eradicate debt before saving. According to a recent article by Forbes, the question of whether to increase savings or pay off debt becomes even more critical for baby boomers on the verge of retiring. According to the article, the median balance of 401(k) and IRAs for baby boomers was $120,000. Meanwhile, 41 percent of boomers had credit card debt in 2010, which was up from 33 percent for people in the same age bracket in 1989. As members of Generation X, we don't want to slack off on saving in our 40s. If we don't, we might be in the same predicament as the boomers.
Getting pleasure out of saving
Some people get pleasure out of spending, while others get pleasure out of savings. Instead of gravitating toward pleasure, I tend to avoid the pain. For me, having debt is unpleasant. To change my habit, I have to remind myself of the risks involved with having insufficient savings during a family financial crisis.
Matching my savings and debt
One of my tricks is to balance out my debt with equal savings. I write two columns. In one column, I write down how much money we owe on our car. In the other column I write down how much we have in our new car savings fund. I made it a goal to have more in savings than what we owe on our car loan. With my mortgage, I keep a separate house emergency fund. As soon as I have more in savings than what we owe on our house, I'll pay extra toward the mortgage again.
Taking advantage of low rates
Building up savings is helping me to feel more secure about my future. I still don't like the fact that I owe the mortgage company and credit union money. However, I remind myself that we have a 2.75 percent interest rate on our home as well as a rate under 3 percent on our car loan. I check my Roth 401(k) returns every month to remind myself that my money is making me more money.
Making it easy to access money
I've always heard financial experts recommend people make it difficult to access their money so they won't be tempted to spend it. I found that approach backfired when I needed to access retirement money to pay for my son's college. I would have preferred to take out the money I had put in a Roth IRA instead of taking a 401(k) loan. Now we save using the Roth IRA and Roth 401(k) retirement savings vehicles because we know life is unpredictable. We should be able to access our own retirement money in our 40s if we want to.
It may take us several years before we have an adequate emergency fund, but with each month that passes by gets us closer to our goal. We aren't trying to have a 3-month, 6-month or even 8-month emergency fund. We just want as much in savings as we owe on our mortgage and car.
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