Last weekend I read Eric William’s new book, It’s Your Money, which details how Eric and Kelsey eliminated almost $40,000 worth of debt in 23 months.
After reading their inspiring story, I immediately declared the rest of the day “Finance Day” at the Livelys.
Mr. Lively was thrilled. During our first year of marriage, we set up some guidelines for our finances and how much we wanted to save, invest, etc. But we hadn’t really given it much more thought since the initial decisions over a year ago.
As Mr. Lively and I discussed our debt situation (substantial low-interest student loans), we realized that we could change our lifestyle to save faster for a house or condo one day, or we could step up how quickly we pay back the student loans.
A few hours of conversation about these two major options, we realized that we don’t know what our priority will be three years from now. If we stay in Chicago for the next 5-10 years, we could live in our current apartment for quite a while. Perhaps until we have two kids. So any surplus saved money could go towards paying down the student loans faster now.
On the other hand, if we end up moving to a more suburban area, we would much rather have the funds to purchase a home right away.
Since we don’t really know where we’ll be in the next 3-4 years, it has honestly been easy to just kind of ignore the whole thing.
“The future is so cloudy now, why worry about it until we know? Let’s just save a decent amount on top of our retirement and loan payments and call it a day.”
Obviously, this is not an intentional way to go about things. But how do you act intentionally now, when you don’t know what you are going to want in the future?
The answer we came up for our personal situation came down to the following:
We don’t know whether we are going to want a down payment for a nice home in the next 3-4 years, or whether we will want to eliminate our student loans. But, we do know that we are going to want to have the option to do one of those two things in the next few years. Therefore, we should start saving more substantially now, to give ourselves the ability to decide later.
I’m not a huge fan of line-by-line budgets, so we decided to take a variation on Ramit’s approach to personal finance. We decided to automate our savings goals and bills, and then have a lump sum for miscellaneous spending like food, shopping, cleaning products, etc. each month. Over the next few months, we’ll be figuring out how to factor in savings for trips and larger yearly expenses, as well.
In addition, we’re also recognizing that excess money that we bring in beyond the budgeted finances can be used for fun spending and trips, or it can go towards the savings or loans.
Though it feels a bit less exciting to be saving so intently for something we are unclear about right now, it feels awesome to know that we are giving our future selves two exciting options to choose from.