Changing Our Financial Strategy
In order to produce the podcast and keep content up free for you, I work with partners so this post may contain affiliate links. Please read my full disclosure for more info.
We changed the plan because after looking at our financial priorities, I realized the original plan didn't quite match what we wanted to accomplish. I wanted to go ahead and explain why we changed the game plan and what we're going to do now.
The Original Plan
I can't believe how quickly the year is going. If you remember in January we had three financial goals for 2011:
- Bumping Up Our Savings for the Baby: Looking at the baby's arrival this summer, we wanted to go ahead and increase our emergency fund. We’ve been comfortable with our account, but we’re now going to move in a more conservative direction and try to get up to a full six months of expenses.
- Build Up Our Car Fund: We specifically want to save $5,000 this year to our car replacement fund. Repairs are becoming more frequent with the Jetta, while they have been manaageble with our budget, we know that they will continue to increase and we are going to need another car in the future.
- Pay Down the Student Loan: It's our only non-mortgage debt left and we would like to pay it down a bit this year. I listed it as a reach goal that I really wanted to meet.
The original plan included putting 50% or more of windfalls (like a tax refund) towards the student loan principal.
Savings More Important Than Debt Reduction (For Now)
While paying down the student loan a bit faster would be great, I think for our family's situation it would be better to meet our savings goals first. I realized that paying down the student loan would be an emotionally satisfying goal, but it wouldn't necessarily be the best move for us.
Something that surprised me as I was looking around at different personal finance writers and bloggers was Dave's Ramsey's take on preparing for a baby.
If you're not familiar with him, Dave's approach involves being 100% committed to while in the debt elimination phase. He calls it gazelle intensity and for some it means getting down to the basics until all your non-mortgage debt is paid off. The exceptions to that rule is when you're expecting a baby or a job loss.
Here's his explanation:
When a couple finds out that they are going to be parents, they often wonder if they should stop the debt snowball to save up for the baby. The answer is yes. Save as much money as you can in case something happens and you need the money immediately. Once everyone is healthy and home from the hospital, you can take that saved-up money and put it toward paying off debt if you didn’t need it for the baby.
I think it's reasonable and fits our circumstances. I think it'll be a few months once the baby's born to figure out our new monthly budget. I'm curious, though – how long did it take you to adjust your budget? Was it a big change for the family?
New Financial Strategy
While it's not a huge change in our goals, it does mean we've adjusted the plan. Here's how we'll focus for our goals:
- Bumping Up Our Savings for the Baby: Since this is the biggest priorities, we'll put the entire tax refund into the account. Once that's done, we'll have our buffer in place slightly ahead of schedule and it will allow us to focus attention on the two other goals.
- Build Up Our Car Fund: Still the same plan-wise. We're going to need another vehicle in about a year or so. Saving in advance makes it less painful financially.
- Pay Down the Student Loan: Believe it or not, the extra payment won't be addressed until the end of the year most likely. As we'll be adjusting to the expenses associated with babies, we'll keep money in savings. Once we get a better grip on what to allocate into the monthly budget, we can then decide on how much to send as a lump payment to the student loan lender.
Thoughts on Changing the Plan
Adjusting financial goal posts and strategies happens time to time for us. How about you? Have you ever changed your financial strategy or goals? Was it hard to do or did the switch come about easily?
Photo Credit: Marion Doss
We switched our financial goals and didn’t really have a choice. We had to use the money we were saving for the wedding to move and pay for a car accident after I got laid off. It was hard, but we’ve been making it work for us.
Sorry to hear about the accident. I’m glad you had some savings to help you through that. Life always throws curve-balls, we just have to adapt our game sometimes.
My wife and I made a few changes both before and after our baby arrived in February (this year).
Before the baby:
-We started putting $100/month into the general “kids” category in our budget. This came in very handy as our due date approached because it gave us the money we needed to get those last few baby items that we didn’t get from the shower. Plus, we were able to buy three years worth of cloth diapers up front and not have to worry about being cut short (check out justsimplybaby.com). We also used some of this money to shop all the local Goodwill stores and numerous garage sales for baby clothes and other baby items (roughly 80% of our baby stuff is second hand and we haven’t had a single problem).
After the baby:
-We are still putting $100/month into the “kids” fund and plan to stop doing this after we reach $1,000
-We started putting $25/month aside each month for kids clothing with a cap of $200
-No adjustments to food budget because we aren’t doing formula; We’re also cooking double batches of things and freezing them, which makes our food money go even further.
-Extra $50/month for gas to go visit family and friends with the new baby.
-HSA – we are doing all we can to let our HSA build up over the next 18 months so we have enough to cover the next labor and delivery bill. My employer puts money in each month, so we don’t pull money out of our normal budget. This is a huge blessing to us. If we didn’t have this setup, we would definitely be putting aside $500 per month (or more) for medical.
-Moving – We initally thought we’d have to move to a bigger rental house soon after the baby was born, but have found that our house, even though it’s only 650 square feet, will work just fine. We’re aiming to have roughly $4,000 set aside by this time next year to move, but we’ll likely hold off moving until baby number two comes along (whenver that is) or later.
-Emergency Fund – We’re definitely upping this. Our goal is roughly three months of expenses.
-Vehicle savings – We are actually getting rid of one car. And the minivan at that! We’ll be driving our small, economical car for a couple years while we save up for a newer minivan (this older one is getting pretty costly). Our plan is to save up $10,000 by the end of 2013. I know this isn’t an option for everyone. It works for us because we live less than a mile from my work and my wife is COO of our house so she’s home a lot of the time. We’ll likely have to go back to being a two-car family after we move because we probably won’t be able to find a larger rental in our current city (we live in the SF Bay Area) for less than $3,000 per month (ouch!); thus, my commute may go up a bit. All in all, we do appreciate living close to where our ‘life’ is, so we’d like to stay within ten miles of where we are now.
Great job on creating and keeping to your plans! We’re checking with our insurance company and my husband’s Human Resource Dept to get an idea of what we need to set aside for the hospital stay.
I was in a similar situation when I had to think about liquidity vs paying down debt, except it was for our next home…came to the same conclusion as you CASH IS KING when you know about an upcoming issue/problem/event
Yep- things happen and having some cash in your pocket can help you out of jams. 😀
Well, looks like I’m the only single guy with no kids, wife, fiancé, or plans along those lines on this entire site, but I’ll comment anyway.
While not out of necessity, I recently adjusted my financial plan to reflect my increased salary. I did the “unthinkable” and actually sold my nice, new Honda Civic and downgraded to something much cheaper that I could pay off very quickly.
Now, not only do I bring home more money than I did before, but I get to keep quite a bit more than I used to as well. And I’m really okay with not driving a new car. There’s less that could break.
It makes sense to slow down on the debt snowball in order to save for the baby! You never know what’s going to happen, and the initial cost is probably always higher than you figure.
My wife and I are considering kids, but we are glad that we have paid off all of our debts already! I think it will make it so much more enjoyable, and much less of a financial burden.
I think revising your goals just a bit is a good strategy. Having a nice baby fund ready for when the baby comes is smart. Then, as you figure out how much that bundle of joy is really going to cost each month, you can factor in the additional student loan payments accordingly. Since I don’t have kids myself, I can’t give you any advice on how much that baby might cost. 😉
It’s funny how no matter how well you think you’ve planned for the future, life comes along and forces you to make adjustments. I know for us there always seems to be something coming out of the blue to make us shift things around.
I am a Dave Ramsey fan and didn’t realize he is a proponent of changing strategy when expecting. I’m glad because it would be too much pressure for people when their are so many costs with a new baby.
I bet you two are getting pretty excited; it won’t be long!