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Hi Everyone....

Here's a quick question for the masses out there.

I've done the following:

(1) Dumped my financial advisor who had us in a fee rich set of mutual funds.

(2) Diverted cash from said funds to kill our remaining credit card debt that was making my wife and I crazy.

(3) Refinanced the mortgage on our house and are rolling our combined student loans into it in order to get a write off on our taxes.

I feel very Foolish and nearly in control of my money for the very first time in my life.

I say nearly because we're now basically back at square one in terms of savings (minus our 401K and IRA accounts) which we did not touch in killing our credit debt.

My question to the Foolish hordes is this:

What's the next step?

Do we:

(1) Begin investing right away...Foolishly of course.

(2) Put some "safety" money away in a CD or money market account before we begin investing.

(3) Something else?

I look forward to your collective wisdom on this....
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I'd vote for an "emergency fund" of a minimum of 3 month's worth of expenses. Once you have that in place, start investing Foolishly.

intercst
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I vote with Intercst's comment:

<<I'd vote for an "emergency fund" of a minimum of 3 month's worth of expenses. Once you have that in place, start investing Foolishly.>>

That way there's far less chance of having debt you will be unable to repay immediately.

Regards..Pixy
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Hi, dudezilla. You ask:

My question to the Foolish hordes is this: What's the next step?

First, I believe you and your wife have already made some great changes.

In answer to your question, I am wondering about payments on a car loan. You didn't mention one. These sometimes carry a rather high interest rate that is not deductible.

Just a thought.

FoolishProf
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My husband and I were at a very similar crossroads last year and I have to admit that the couple of years it would take to accumulate a decent emergency fund seemed like a great deal of lost time to us. What we did was allocate a monthly amount to the emergency fund. When it gets to 6,000 we'll stop. That could take upto three more years because we are investing some of our cash now as well! We have about another 300-500 a month to invest and so far we've been making 5-7% a quarter on these monies. If we didn't invest we figured it would have taken a total of two and a half to three years to accumulate the fund instead of the four it will now take because we are diverting money to invest.

I don't know if all the Fools out there would agree with this approach but we feel it has been a good compromise for us.
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That emergency fund can be structured depending on what your needs are likely to be. For example, some mutual funds allow check writing. If you usually have some balance in your checking account to cover you for 2-3 days and some emergency room on your credit cards, you can put your day 4 - 90 money into a relatively conservative bond fund like a GNMA fund. You take some interest rate risk, but you will get higher returns. Otherwise, passbook savings account or money markets are probably best. I use tax free bond funds for this purpose.

Do start working on Roth IRA and 401K as soon as you can.
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i'll volunteer to be the crazy person :

my Emergency Fund is in the RP4
[not suitable for all investors] --

Small emergencies, write a check against Margin (cheaper
than CC)

Big emergencies, liquidate part or all of the stocks,
immediately or over time.

Downside (BIG) -- may have to liquidate in a down market.

Upside --possibly earn significantly above MMF.

i prefer RP4 for this instead of other stocks because,
try as i might, i get emotionally involved with my
others and it would Hurt to sell before i was ready.

but one has to seriously consider the possible emergencies and
each of their likelihoods.

(note that the Downside decreases over time -- 3 or
4 years of +20% and the market will have to seriously
tank to get you back behind MMF rates. otoh, a serious
drop in the first year could cause much heartburn)


jp
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Definite vote for working on the emergency fund, kept either in CDs or MMF. Most people say from 3-6 months worth depending on job stability and ability to find work. Also in this lean, have you considered/have disability insurance and when does that kick in? That'll also help decide how much to have tucked away.

JLC
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