• Alternate Title: Why You Shouldn’t Travel Without an Emergency Fund
• Alternate-Alternate Title: How Not To Communicate with Your Husband About Finances
• Alternate Sub-Title: Why You Might Not Want to Max Out a ROTH Right Before Traveling Cross-Country

First I Met With Our Financial Adviser

On our recent trip to Kansas to visit family, I met with our financial advisor who lives in my hometown of McPherson.

We picked this financial advisor several years ago based on recommendations from family and friends; I had just stopped working full-time and was looking for someone to help me start a traditional IRA account since I no longer would have one through an employer.

Fast forward ten years and we have met with this financial advisor only one other time since then, before I sat down with him again last week.

They say you should invest your money and then leave it alone, but this is kind of extreme.

My motivation for this meeting was to determine not only the best place, but also the best amount, to park in a liquid savings account to prepare for our upcoming move in one year.

ROTH vs. TSP

In the past, we have mainly focused on contributing to The Hubs’ TSP account (the military version of a 401k) for retirement savings. A few years ago, we did open up a ROTH, but it remained small and we continued to invest primarily via his TSP. We even stopped making contributions to the ROTH altogether after we moved to Ohio and our expenses went up while The Hubs’ pay went down (after moving from overseas).

In this past year of climbing the financial learning curve, I have grown to understand that the advantages of a ROTH out-weigh those of the 401k as an investment vehicle. Contributions to a 401k make sense so far as you are getting an employee match. The TSP does not match a dime. Thus, we should first max out a ROTH and then with whatever savings we have to spare for the remainder of the year we should put toward the TSP.

We Stopped Retirement Contributions to Focus on Our Snowball

Some of you may recall that we stopped making contributions to The Hubs’ TSP account to focus on paying off our debt. That made me nervous. I decided I would just let that help motivate me to pay off our consumer debt as fast as possible. (It worked!)

All of This to Explain Why I Did What I Did

So I’m sitting down with Mr. Financial Adviser and he’s explaining how we can not only still make a 2009 ROTH contribution, but we can park it in a ROTH money market account so long as we want to keep it safe and liquid: ROTH rules state that we can withdraw contributions that we make at any time; it’s the earnings on a ROTH that incur penalties if withdrawn too soon.

The best part? If and when we determine that we do not need to use the money short-term, we can move it into a longer-term investment. So we’re getting the best of both worlds: Not losing out on a ROTH contribution for 2009; and still having access to savings if we need to use it short-term.

Mistake #1

We paid off our consumer debt in February (oh, gee, have I mentioned that?) and had $1000 leftover that I put into our regular savings. By the end of March, I had added another $2400.

This was money that normally was going toward our debt snowball!

We already had $1000 in our (emergency) savings… Have you been doing the math? We had about $4400 in savings by the end of March.

I went into the meeting intending to put the entire amount into a ROTH… but I got a little excited and decided to go ahead with the maximum contribution (for 2009) of $5000.

Mistake #2 and Why This Was a Problem

I knew I was cutting it close by adding the extra $600. Just before we left on our trip I wrote a check for over $1000 for (yet more) car repair and maintenance. (Haven’t gotten around to blogging about that yet.) (But I will.) (Oh, boy.)

As we started our (800-mile) drive, I discovered the air conditioner wasn’t working. Remember those warm days we had? It was a long, long drive.

I planned on taking the car to the shop while in Kansas but hadn’t yet made the appointment at the time I met with Mr. Financial Adviser and decided to write a check for $5000. Not only did I not factor in the cost of the repair, I didn’t even know how much it would be.

Mistake #3

I didn’t bring so much as one credit card, or any other access to money, on the trip with me.

Mistake #4

I didn’t tell The Hubs (who’s still deployed) how much money I was moving around. Nor did I factor in his cash spending for April when I mentally did the math and calculated I could splurge for the additional $600. A couple of weeks ago, The Hubs lost his camera. (Totally not a Hubs thing to do.) (I suspect he had a little help “losing” it.) He finally decided to buy himself a new camera — for $300.

You following this?

Mistake #5

By this time, I was starting to catch on that maybe it wasn’t such a great idea to deplete our entire cash savings while I was in a middle of a road trip without any other means of getting to some cash. I double-checked the account — yes, we do have overdraft protection. Whew. I was safe.

I was so wrong.

Mistake #6

I counted on the overdraft protection coming through in the event I needed it to fuel up along the way. It didn’t exactly work out that way…

Sure enough, The Hubs’ transaction for his camera posted on the account; then the bill for the AC repair (more on that later) about which I apparently wasn’t even concerned; along with all the usual other stuff and wham! just like that: No more money. And no savings. And no credit card.

I could have easily asked for some cash from my parents before I left to cover me just in case. But I didn’t. Not out of pride, mind you. I just didn’t think I’d need it. The overdraft would kick in, Hubs’ paycheck would hit the next week, and I’d pay it all off and start over. No biggie.

The First Stop

About halfway through the middle of Nowhere Missouri I stopped for gas and swiped my debit card at the pump.

“See Cashier”

Oh, crap crud.

I go in and she tries swiping it on her register, first as a debit, then as a credit. No go.

I dig through my wallet and find $18 in cash. I hand over $15. A round number felt less desperate.

We hit the road again.

I decide to be proactive and call the bank to see if they might bail me out help me out of my stupidity.

A Note on ODP (Overdraft Protection)

When you overdraw on your checking account and the overdraft kicks in, it likes to pull the money over in $100 increments. Our checking account actually has two ODP accounts: the primary is the savings; the secondary is a credit card.

I had left a whopping $56.02 in our savings account. The checking account was already overdrawn by $185.06, with $200 pending from the credit card ODP to cover it. The customer service representative went ahead and transferred over the $200 (this was the weekend, so normally the ODP credit would not post until the next business day) which gave me access to $14.94. He also went ahead and transferred over my savings to my checking account.

I had $70.96 to get us home. Luckily, we had plenty of food in the car.

The Last Stop

Because $15 doesn’t come close to filling up our lean, green, mean machine (that only takes high premium fuel thankyouverymuch) I stopped again shortly to add another $30. This time, I went in to pay first to avoid the pump way overestimating an approval on the card as they are prone to do. Everything worked fine.

Just one more stop would get us home. I went ahead to pre-pay like before, only this time I forgot to tell the guy I needed to pump premium gas and not regular unleaded. And he didn’t ask. He swiped the card for $40. My last.40.dollars.

“Oh, you needed premium? Let me just refund that.”

Oh crap.

It all happened so fast, and I knew what was going to happen: debits subtract out of your account right away as pending transactions; credits don’t show up until they hard-post at the end of the next business day.

Sure enough, after he “refunded” me, he tried to swipe the card again with the correct fuel pump and it wouldn’t take. I called the bank again.

I Was Amazingly Zen About the Whole Thing

Can you see how much time and effort this took? Amazingly, I was rather Zen about the whole thing. It would have been one thing if I were broke. Instead, I was just stupid. It’s an entirely different mentality. The whole situation was pathetic and totally avoidable, but not sad and hopeless. I did have money; just not where I could get to it.

I’d like to blame my woeful lack of planning and foresight on some news that we received right before we left that will drastically affect our immediate financial future (among other things). But truth be told, I had the steps in place that led to me traveling without any money well before that news got my head spinning and my gears shifting.

If you follow me on twitter or are a fan on facebook you already know what I’m talking about. If not… Well, then, serves you right; you’ll just have to wait.

We paid off our consumer debt last month! Woo-hoo!

Oh, wait. Did I mention that already?

But we still have a boat-load of mortgage debt. Here’s the skinny.

• Second Mortgage: $31,552.49
• Primary Mortgage: $170,820.61
• Rental Mortgage: $109,150.33

Total Mortgage Debt: $311,523.43

*gulp*

We are taking a brief hiatus on the debt snowball to build up some savings (beyond the $1000 emergency fund).

WWDRD?

What would Dave Ramsey Do?

“Generally speaking, if your second mortgage is more than 50 percent of your gross annual income, you should not put it in the Debt Snowball.” – The Total Money Makeover, pg. 130.

Our second mortgage balance is not more than 50 percent of our annual income. Following Dave’s guidelines, we should include our second mortgage in our current debt snowball and tackle it immediately with gazelle intensity.

We Are Not “Generally Speaking”

However.

We’re scheduled to move the Summer of 2011. Historically, moves have been the financial hiccups that kept getting us behind — or at least, not ahead. The motivation behind this blog is not only to become debt-free, but to live credit-free as well. And the only way to do that is to prepare for financial hurdles — like a move — so that when the extra expenses arise we’re drawing from a savings account and not reaching for a credit card.

So it makes sense to bulk up our savings a bit before tackling that second mortgage. God-willing, we will also eradicate that second mortgage once we successfully sell the house next year… Obviously, we can’t count on that. (We just bought the house in 2007.)

The regular payment for our Second Mortgage is $283.90. The majority of that goes to interest. For instance, here’s the breakdown for the March payment:

• $201.03 = Interest
• $  82.87 = Principle

Kind of hurts to see that in black and white, doesn’t it? (Have you ever looked at the breakdown of your payments?) (For anything?)

We Attacked Our Consumer Debt Pretty Intensely

All told, we paid off almost $20,000 in ten months. We will continue to snowball debt… However, in addition to bulking up more savings, we will also start setting money aside in the budget to save up for larger purchases that we would like to have: a keyboard; a new bed; a new camera; a family vacation…

I would call those items above wants. But I want them really badly. (Except for the new bed. My back would argue that as a need.)

I would be remiss if I didn’t mention that The Hubs is also anxious to start a car fund.

We will actually plan for these purchases and set a priority for each. We have yet to discuss how much should be designated each month toward saving for these future purchases. It will need to be a workable balance between tackling the debt and being realistic with how much we are willing to sacrifice while working toward our ultimate goal of being completely debt-free.