The title of this post is a bit misleading. I have blogged in the past about how I keep most of our emergency fund in my Roth IRA. I did finish the fund off at the end of December. However, as I began to investigate our tax situation I realized that I would be using a good chunk of that fund to pay our tax bill. There is NO way I want the IRS hanging over our head so I decided to take most of the emergency fund and just transfer it our savings account.
I also decided to move a bit quicker and pay off some debt faster. I am a debt chunker, which means to me that I like to set short-term debt goals, save a little bit of extra money and then pay a small chunk of that debt. So if you have a debt of $25000 you might make monthly payments of $400. Continue to make monthly payments on that debt, but I make a goal to pay a chunk of it (e.g. $2000). So I save money until I hit that $2000 mark and then I take that chunk and pay off the debt faster.
When I do this I like to see really even numbers so I will take the balance of one of my debts and pay it down to the next thousand dollar. So for example, let’s say my debt is $23, 352 and I have met my chunk goal of $2000. I might take $1352 and get that debt down to $22000 after my normal monthly payment.
I don’t know why, but I guess I just like seeing zeros on the end of that debt. I like things clean and paying that debt down makes things cleaner, at least for me.
I Struggle With This Decision
You might ask why I decided to basically take out all of my emergency fund. Truth is I struggled and still struggle with this decision. I mean the tax bill needs to be paid and most of the money will go to pay that, but I will have a little left over to chunk more on my debt.
However, that will basically leave my emergency fund at about $1000. So I still have some money in place, but there is a little insecurity there without seeing that larger amount of cash there.
I also struggled with this decision because the interest rates of my debts are really low (2.39% and 4.5% respectively) so I pay huge chunks of them off when I make the monthly payments, but it isn’t going fast enough. And I guess I see the debt as a bigger problem than whether or not I have some cash sitting around. I mean the quicker I am out of debt, the quicker I can save that money and put it to good use somewhere else.
What Is My Next Move?
So I am not sure about this one. Once I have chunked down my debt it still won’t be enough to eliminate one of the debts I have. So do I put the money back in my Roth IRA? Do I save it and chunk more on the debt? Do I just keep it liquid and add to my savings account?
*Side note: Don’t worry about me taking the money out of the Roth IRA. You can take contributions out ANYTIME you want. There is no tax penalty. There is only a penalty if I were to take any kind of growth on that money out. Considering what I took out was all in cash I am not worried about any tax problems.
I don’t know. I haven’t made a decision yet. I want to put the money back in the IRA (I just like seeing the balance grow by thousands) but I also HATE, HATE, HATE, having this debt and it seems like it is taking forever to pay it off.
The Bottom Line
I don’t necessarily advise people to do what I did. However, in my opinion the IRS bill is an Emergency. I don’t want them knocking down our door. I could put the rest of the money back if I wanted too and I will still have a small emergency fund, which I will NEVER get rid off unless it was a BIG emergency (not sure what that means).
I still believe in having an emergency fund, but sometimes you have to use it. It is raining in the ROB household and I am glad I have an umbrella to keep us from getting totally wet.
I just have to decide if I want to make a bigger umbrella or if I keep the small one and get rid of the chances of it raining into the future.
What do you think? Am I making the right decision? Advice?