Need Help with Planning Savings

[BkinTX]

With our current budget (once we dump the cc debt and auto pymt), we will have $500/mo to save.

We currently have no savings (well, we now have money left over since we haven't paid cc this month but no official savings). I know the first goal is to set up an emergency fund.

We do have some short and long-term goals.

I want to open an acct with Wilshire State Bank -- 36 mos @ 4.86 apy. In order to get this apy, we must commit to depositing x amount every month, without fail.

We would also need to leave the money in the account for the full 36 months.

Of the 500 available for savings, how much would be prudent to put into the WSB account? I would love to put $250 but I am wondering if that is too much since we do need some very liquid savings for emergencies, Christmas, medical/dental/optical, etc.

Also, I still have about 6k in student loans at 3% interest. Should I attempt to pay those off first? I will be making monthly payments on the student loans regardless (and DH should receive a sizable bonus that could pay them off in full).

I am so new to savings. Any assistance or guidance would be appreciated!

[HHM]

For the emergency fund, how much do you need? Recomendations vary from 3-6 months worth of current monthly income. So, if you earn 4,000 per month, you should have an emergency fund of $12,000-$24,000.

I think for savings, you need to look long term and consider the tax attributes of your retirement.

1. Do you have a 401K, if yes, make sure you are contributing up to your employers matching contribution. (these are pre tax dollars). Traditional IRA's are also pre-tax (assuming you qualify).
2. Then you should be looking at retirment vehicles that allow withdrawal tax free at retirement. Roth IRA and Whole Life Insurance. Whole life insurance is a good option, you get a death benefit, plus cash value to borrow against at retirement (note, there is no penality for taking withdrawals from your whole life insurance).

Generally, you should have save about 50% in each category (pre tax and post tax).

[BkinTX]

Net is about $3,800 -- should we have 3-6 mos pay or just expenses? I know saving that up is going to take a while.

DH is military so no 401k but he is eligible to contribute to a thrift savings plan that is pre-tax. With his military retirement, do we need the same retirement focus as civilians?

I don't really understand IRAs or Whole Life Insurance. I am completely new to this.

How much focus should be on retirement savings and how much on meeting short and long term expense needs?

If we have $500 for savings -- $250 should go in thrift savings plan and $250 in something else -- how do we determine how much of that should be for retirement and how much should be for other savings?

I'm sorry if I sound like an idiot. In this area, I definitely am.

I really appreciate your help.

[StartingOver08]

This is just my opinion only.

Start simple. Put together a small emergency fund for all of those things that pop up - like car repairs etc. This would be in an easy access savings type fund, $1000 to $2500. (This is the fund you use rather than a credit card!)

Start your thrift savings fund immediately - nothing beats the power of time.
The whole life policy is a good idea - especially if you get it while you are young and it is inexpensive. This is a good vehicle if you run into issues later in life, you can borrow against the policy and repay yourself with interest. Shop for a good plan, they are not all the same.

You might want to interview a couple of financial planners...some are good and some not (just like attorney's their experience varies).

The best thing is to commit to your plan in writing. Good luck with your new fresh start! Sounds like you are going in the right direction!

[HHM]

Does your husbands branch of the military contribute to the plan? If yes, then he should match that contribution. I.e. If the agency matches up to 6% of the service members contribution, then the service member should be devoting 6% of their pay check to the plan.

As for retirement, the goal would be to have enough for retirement so you need not depend on social security...which is a big hurdle.

The tax issue has to do with whether you want to pay taxes on the money you withdraw for retirement. And yes, you need the same retirement focus as civilians, that retirement pay may look good now, but 20 years into retirement, you will barely be able to live on it. Think of it this way, a Vietnam era retiree is barely getting $1,000 per month in military retirement.

For short term issues, startingover has the right idea. Get about $4,000 in a savings account and treat that fund for emergencies (Christmas is not an emergency, just simply plan for it ahead of time, set a spending cap and stick to it). After you have $4,000 in the bank, I would be looking at Whole Life Insurance and Roth IRA.

[BkinTX]

Thanks so much for all the input. I am going to bookmark this so I can come back to it.

The Army offers free financial counseling but DH doesn't want to do that. I told him we could pay someone to help us -- a financial planner. He says, "Pay someone to tell me how to save money. That makes sense."

AHHHH.

I guess step one is just to keep sticking to the budget so there is money left over.