Out of debt, emergency fund established...now what?

**jakkim** · 06-04-2010, 08:40 PM

Hello everyone, and thank you for reading my post and I appreciate any insight that you can provide.

My family is now debt free and we currently have 6 months of savings set aside. To get to this point we have really been living on rice and beans but we have finally made it. During this time we have been renting and now I'm not sure if I should start investing 15% of our income or save and buy a house.

If we save to buy a house it's going to push off investing/college savings for quite sometime. If we don't buy a house we are potentially missing prices and rates that we will most likely never see again. If we decide to purchase a house do we reduce the amount we could spend by the 15% we plan to invest or work that out later?

I just don't know what makes the most sense, start invest 15% then start saving for college for the kids, and then buy a house, or get into a house first and then sort our the investing stuff?

**dcompton** · 06-04-2010, 08:47 PM

Wiser folks than I on the board can help you with this. I just wanted to send you a congrats on a really great job. You dedication has paid off - you're in a good place.

**ladytoysdream** · 06-04-2010, 08:54 PM

Hi and welcome.

Not sure what to advise you but.....
*debt free and currently have 6 months of savings set aside*
is a job well done...congrats

**mateosbaby** · 06-04-2010, 09:22 PM

Congrats on being debt-free! Excellent job!

As for advice, I guess it depends on how old your kids are. If they're very young, I'd try to do both. Don't spend a lot on a house - make sure you can afford it EASILY. But if your kids are nearing college age (at least middle school age), I'd start saving for college like crazy, especially if you have more than 1 or 2 you're saving for. Are you paying 100% of college tuition/expenses, or just some? If they're old enough, they should be saving for it, too, if they are expected to help pay their way.

**3tomboys** · 06-04-2010, 10:08 PM

Congratrulations on being debt free and having 6 months of expenses. The only thing I can say is do what is most important to you and your family.

**frugalfranny** · 06-05-2010, 01:07 AM

No advice to really give......what does your family want? What do you think is best for them?

I just wanted to give you a pat on the back for a great job! Showing some real discipline and it will make your life much more 'stress free' as you (we) navigate through a crappy economy!!

CONGRATS!!!

**piney** · 06-05-2010, 12:06 PM

Congulations on beign debt free and having 6 months saving,wishing you the best on what you decide to do.

**IntlMom** · 06-05-2010, 12:30 PM

Greebo needs to chime in on this one.........

**jakkim** · 06-05-2010, 02:20 PM

Thank you for all the comments.

Getting debt free was not easy and it took a life changing event for me to even realize the position we were in.

By the time I was 26 I already had 3 kids, master degree, CPA, and was making a very good income.My wife stayed home with the kids and we were trying to live the American dream. Being just like all the other normal people we knew we had a big & expensive house, new cars, ect and zero savings. Even though I had a very health income we were essentially living paycheck to paycheck.

Right after our third child was born I was diagnosed with a rare form of bone cancer. I ended up needing extensive surgery and months of treatment and was out of work for nearly 6 months. While I still did receive disability income we had to rely on our parents to help us get by which ultimately put a lot of stress on them too. To turn around our lives we sold our house, which was ~ 50% of our income and moved to a 2 bed room apartment. We made no money on the sale but we were now able to save a ton of money each month. It has taken us just over 2 years to get to this point but it was so worth it.

**lparker** · 06-06-2010, 04:36 PM

Told my daughter right up front that we couldn't pay for college. She let the Air Force pay for her education. She has one or two Masters and a few Bachelors degrees. She is a go-getter.

If you go that way, save for a house.

**CPA-Kim** · 06-06-2010, 08:08 PM

As one CPA to another, save for the house. There are so many buys out there, you'll probably have a lower mortgage payment than what you pay for rent. Once you're in the house, fund your retirement and when that's going along well, put something aside for kids' education.

The best investment you can make in your kids is to motivate them to get excellent grades and understand how their performance in school now will affect their ability to attend college on a free ride.

Congratulations! I had a life-altering illness, too and the medical bills to prove it.....still working on them but glad to be alive and blessed.

**Greebo** · 06-07-2010, 09:25 AM

You're in baby step 3b

Dave's talked to people in your situation before, and his official recommendation for people in your shoes who have NO consumer debt and a fully funded emergency fund is now save up for a down-payment on a house.

You need to save up enough money to be able to put down at least 10% (preferably 20%) and you then do not want a 15 year fixed rate mortgage where the PITI (Principal, interest, taxes and insurance) do not exceed 25% of your net take home pay.

AFTER you buy the home and then get settled, then you jump to BS4 and 5, setting up retirement and educational investing, then you get to work paying off your house even faster than the loan is for.