Yesterday I talked about life “after debt”.  I questioned if it’s easy to live after debt and when your life lacks focus. I found it a lot harder than life while paying off debt because I didn’t have any set guidelines for how to save.  I still don’t have hard fast rules but I’m trying to build a savings base now.

Long term savings is easy because it’s for retirement.  Thus I know that we need a minimum of 15% and as much as we can otherwise.  Currently we’re doing about 20% to retirement with maxed out 401k and Roth IRAs.  It’d be lovely to do more, but honestly we can’t.  Why?  Because we have other savings goals which need to be funded as well.  Thus as long as we take full advantage of all retirement accounts available I think we’re on track to retire comfortably.  I also lump saving for college in this “long term” savings category.

Now the harder to judge short and mid-term savings.  What falls into these categories for us and how to fund it.  Well I think of short term savings as things that fall within a year.  For us currently it’s simple items like my DH’s tuition bills, Christmas, birthdays, vacations/travelling, home repairs, car repairs, insurance, and property taxes.  Things I know are annual and I set an estimated number.  This estimated number can change year to year and vary even during the year because of unexpected expenses.  But at least I’m saving and planning on a number.

I think short term savings is an easy concept to jump to from paying off debt.  You know that you’ve deferred maintenance on a number of things, and you’ve downgraded vacations, christmas, or birthdays.  But these are things that happen.  That’s not the hard part.  You set a number every year and divide it by 12.  Hopefully it’ll be even by the end of the year.

The hard part is the mid-term savings.  These are things that aren’t long term like retirement, but longer than one year.  Like what?  Well things like car replacement, major home repairs, furniture, etc.  Why is it difficult? 

Because how do you know when you’ll need a newer car?  And how much do you want to spend?  If you say 10 years, will the $10k your saving for now be enough in 10 years or will you have to increase the number for inflation?  Or what happens if your needs change and your sedan doesn’t fit the unexpected 3rd child you have so you get a minivan to fit 3 carseats?

For major home repairs I think of things like the roof, new storm windows, or insulation.  Perhaps it’s something you know is coming, but can’t quite predict when it’ll be necessary. Plus these are not cheap reapirs and may take you multiple years to save for it.  And a quote you got in 2008 won’t be good in 2012.

So how to predict what you need?  I think in the beginning we’re doing you save it into one pot. It’s not subdivided because there isn’t enough money to fund all midterm savings goals.  Hopefully everything we have lasts long enough for us to build up a cushion to afford to replace our cars or repair our home.  If not, the tough decision is made, do we make do with a temporary repair or touch our EF or take out a loan even?  I think if you are just starting out saving and without a Emergency Fund, it’s pretty obvious that a loan might have to happen.

However if you keep tapping your Emergency Fund for all “unexpected” expenses, it’ll never be built up.  And what happens if you lose your job, become disabled, or die?  That’s what I think an EF is really for, major catastrophes.

Right now my DH and I are sadly lacking mid-term savings.  All our money is going to long term savings, short term savings, and boosting our EF.  So technically we’re at zero.  We’re in the stage of if some mid-term need arose we’d have to carefully assess whether to use all available cash or take out a loan.  And thus why I think it’s harder to live ”after debt” than paying off debt.  You forget about all these savings while paying off debt.  So filling all these different pots with money is tough.

What are most people doing?  How are they balancing short, mid, and long term saving goals with living?  And is it easier than paying off debt or harder because of a lack of focus?