Pay off car or one month ahead?

Hi,

So this is our 2.5-month mark. I think I've set up our categories the way I like them. We have a $1,000 baby emergency fund, $200 set aside (there was more, but we've paid some of our true expenses in January) for true expenses, and have our age of money up to 16 days.

I've started working on our tax return and have a pretty good idea of our return. We could pay off our car entirely by the end of February/beginning of March, depending on how long it takes for the refund. That would leave us with one debt left (our SUV at $10,000). Or we could almost be a full month ahead in YNAB.

Should we go ahead and pay off our car, which would eliminate a $280 car payment, or use that money to get a full month ahead and pay off the car in May? 

Some things we're considering:

My husband's job will likely be changing at the end of the year. We are a military family and he's getting out. He'll be going reserves so we'll keep our health care, but we aren't sure what our income will look like for 2022. Our goal was to be completely debt free August of this year, (maybe July, but that's assuming nothing expensive happens). I'm not sure how far it would push us back to become a full month ahead. 

If we had our debt paid off by August that would give us 5-6 months to pile up as much cash and we can before he transitions out of the military. Just curious what you all would do? Would you prioritize getting a full month ahead or just saving for our true expenses and attacking all the debt until it's gone? 

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  • I would get a full month ahead. I am noticing how smoothing out all of the dips and valleys of my financial life is giving me a lot of insight into how I spend money, my patterns and so on. So, in some ways, getting a full month ahead is a really useful way to attack all the debt, because being a month ahead =  more clarity on how your money is flowing = more ability to make great choices. 

    There's not that much of a difference between paying it off in March or May and there's a huge difference between being able to budget a whole month at once, versus little pieces here and there, so that's what I would do. 

    Also if you have uncertainty in your future, I would think a larger EF would be good. If you budget a month ahead then you basically increase your $1000 EF into $1000 + 1 month expenses and that seems wise given uncertainty about your income. 

    Like 7
      • lindsfin
      • Navy_Blue_Python.14
      • 4 mths ago
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      • Reported - view

      I’ve never thought about it like that. Having my baby emergency fund, plus an entire month ahead, and having my true expenses funded. It would take a lot of stupid or a disaster to financially undo us after that. 

      Like 3
      • MadDog
      • Navy_Blue_Pegasus.2
      • 4 mths ago
      • Reported - view

      Ivory Storm +1

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  • I suggest you get ahead first. In fact, I would put the EF toward facilitating that. You can always reallocate back if needed, though you would obviously give up the benefits of being ahead. My point is, the EF is useless until you need it. Being ahead and budgeting on a calendar basis is useful now.

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  • Absolutely get one month ahead, having an emergency fund is always crucial but getting one month ahead gives you the breathing space to think more clearly about your next moves.

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