'I just quit my job to be a SAHM to save for childcare': How can we save, invest, and pay off debt without living paycheck to paycheck after a major life change?

Hi Money Minder,

Hey there! I’m in a bit of a pickle and could really use some advice. My husband (23M) and I (25F) are on a mission to get out of debt super fast so we can buy a house next year.

So, here’s the deal: my husband just finished up his active duty military service, and I’ll be the first to admit I used to have a bit of a spending problem. We always managed to pay our bills and get what we needed, but saving just wasn’t happening. But now that I’ve gotten some help for my bipolar disorder, I’ve had a complete turnaround when it comes to spending habits. Oh, and we also have a one-year-old daughter with another baby girl on the way in January.

We used to have two car payments totaling $1,100 a month. But my smart hubby just sold his car for $16,000 and only had $11,000 left to pay, so we ended up with an extra $5,000 in our pockets. He’ll also be getting a $20,000 bonus for joining the National Guard.

As for my car, I still owe around $11,000 with a monthly payment of $536. Our credit card debt is pretty minimal, only around $800. We always pay off our main credit card right after we use it. So, besides my car, our total debt comes to about $7,000. Plus, we’re shelling out $1,500 a month on rent plus utilities, and another $500 on food (thankfully, I have some guaranteed income each month to cover that).

My husband brings in about $45,000 a year from his full-time job, and I recently quit my job to stay home with the kids and save on childcare costs (which would’ve pretty much eaten up my entire salary anyway). I’m also set to finish up my degree in Data Science this October.

So, here’s where you come in: any tips on how we can divvy up our cash to start saving, contribute to an IRA, pay off debt, and avoid living paycheck to paycheck? Help a sister out!

Thanks a bunch,
Emma

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Response from THE MONEY MINDER:
Hello There,
Congratulations on taking steps to improve your financial situation and being proactive in your approach! It's great to hear that you're working towards getting out of debt to achieve your goal of buying a house next year. With your husband's bonus from signing up for the National Guard and the money from selling his car, you've already made a significant dent in your debt.
To allocate your funds effectively, it's important to prioritize paying off high-interest debt first. Since your credit card debt is minimal and you pay it off immediately after use, focus on paying off the remaining $7,000 besides your car debt. This will help you save on interest payments and free up more money for saving and investing.
Considering your monthly expenses and income, it's advisable to create a detailed budget to track your spending and identify areas where you can cut back. With your husband's income, your college degree in Data Science, and your upcoming completion in October, you have the potential to increase your household income in the near future.
To prevent living paycheck to paycheck, aim to build an emergency fund equal to at least three to six months' worth of expenses. This will provide a financial cushion for unexpected expenses and help you avoid going further into debt. As your income increases with your new career opportunities, you can start contributing to an IRA for retirement savings and potentially consider other investment options.
By setting specific financial goals, creating a budget, paying off debt, building an emergency fund, and increasing your income, you can work towards financial stability and achieve your goal of buying a house next year. Stay focused and keep track of your progress to stay on the right financial path.
Best of luck with your financial journey, and feel free to reach out if you need further advice or assistance.
Farewell from THE MONEY MINDER.