There was a thread in forums which discussed 529 plans and I want to detail my stance here.

My plan includes the following (done in order listed):

1) Have a budget which is 15/5.
Meaning 15 percent to retirement plans
Meaning 5 percent to short term financial goals (pay down mortgage, vacations, new cars, house improvements or other).

2) Making sure retirement accounts (401k and Roth) are maxed for each spouse. This is important early in process.

3) Having mortgage paid off.

4) considering 529 plans once mortgage is paid off. Logic being that if a person earns around 80k or less per year, the above objectives make more sense than 529 plans.
This plan has a lower federal tax bill than reversing the order.
This plan makes sure the parents are stable financially (now and in future).

--
Some people with 13 year old see this and think "I cannot pay off my mortgage in 4-9 years before my child goes to college".

That is my point... if a person cannot aggressively find the money for making a higher mortgage payment now (to pay it off early), what makes them think they can afford the price tag of a college which is 14k-40k per YEAR for 4 years?

Pay 40k per year on your mortgage now and that proves you can foot the bill on a 40k education price tag.
--
To accomplish the mortgage payoff over a 4-6 year timeframe, a person or family should look at my doubles table.

For example, want to retire at 63, current age of 48.

assume 8 percent annual returns
Age 63 need 25X expenses
age 54 need 12X expenses
age 45 need 6X expenses

This tells me if person did not have 6X already, paying for college and retiring at 63 are out of the question. One of the goals has to give (retirement at 72, pay for college or no college and MAYBE retire at 63).

If the person/family already had 12X expenses, they are ahead (remember current age is 48, they don't need 12X until 54.

I would then take 401k down to point of match, then either fund a 529 or pay down the mortgage (for college). Some of this deals with taxes, some with other considerations.

The main point is to get ahead of retirement checkpoints before starting college funds. Saves on taxes early in life, which puts more money to work early in life.

I've added some milestones to the author bio. The top money numbers have been there for a while, the bottom are the details I need to fulfil to make that happen.

Here are some details:

If I get a 3 percent raise, I can increase my 401k by 2 percent and not see take home pay drop. In 3-6 years that will have the 401k maxed (the plan is to save 1 percent less than the raise percent- this means take home never decreases). Get a 4 percent raise, add 3 percent to 401k type method.

For wife it will take about 7-10 years to max on the same plan. Once my 401k is maxed, I have a spreadsheet which shows us how to take my raise and save it to her 401k (3 percent raise for me is 6 percent increase in her 401k for example).

Our EF was depleted in 2008. We have 1 months expenses now spread out in 6 cds maturing every 16 days. We will be adding $340/month to those starting Jan 31, and $600/mo by years end as some loans get paid off.

The taxable account gets the $600/mo once the EF has 3 months and will take 3-6 years to reach that goal.

College accounts will not be opened until 401ks are maxed.

The dividend income goal is probably not reached until the year I retire or close to it (need some good investment performance to reach that).

Other goals:
1) finance wife's next car for 3 years or less (2009). Once car is paid off we bank the payment for a car fund.
2) pay off 2nd mortgage within 6 years. We currently "round up" a $39x.yz payment to $400. Our cc rebate also pays 1 percent of all purchases to the 2nd mortgage, and when my truck is paid off in 2010 we will pay $700/mo extra. We owe about 49k at 7.6 percent.
3) pay off 1st mortgage before kids start college. Some of the $1100 for 2nd mortgage can be used to pay down the first. Some of this pay down money might actually get invested. 280k is what we owe now.
4) Get $375k invested by age 37 (2010). We are $170k short right now. This gets retirement plan on track.

I am reading through many other people's goals for 2008 or 2009. Most of my goals are long term, and I just make sure I do certain things towards the goals each year.

goal 1: 15% retirement contribution (my 401k, wife's 401k, my Roth, her Roth). If all adds up (current plan) it will be ~20% for 2009.
5k to my Roth
5k to wife's Roth
8k to my 401k
3k to wife's 401k

goal 2: get EF back to 12k by end of 2009. We tapped into it in October of 2008 and by my calculations it should be close to 12k by end of year (it is 3k now, gets $300/mo, plus tax return, plus $300 should increase to about $500 by october). HR block income might go to EF as well.

goal 3- take 3 vacations. We are camping Memorial day weekend at Letchworth state park (NY) with my cousins. Also considering a weekend to either NYC or Chicago around thanksgiving, and maybe a Vegas trip too.

goal 4 (this one is the most important one)- make sure I do not kill anyone anytime soon.

goal 5- I would like to get 4-10 clients for my financial planning business as well.

I had Thursday-Monday off.

Thursday was a sick day because both boys had outpatient surgery. DS1 had hypospadius repaired (that means he can now write his name in the snow without a slant to it when he is older if you know what I mean). DS2 had a bilateral hernia repaired.

My parents came into town mid day Thursday and watched the boys while wife and I got the house ready for a party on Saturday (it was DW's mother's 60th birthday).

Saturday was the party and my MIL was shocked. We had 60+ people in our house and it was not crowded at all (good thing). That was first time we ever had that many people.

Sunday my wife made saurbraten for dinner and we cleaned up. Actually I took a nap and my wife and parents cleaned up.

DS1 was being fussy on and off all weekend. Never slept thru night at all- side effect of surgery is he has a stint (tube) up his penis, so I guess I don't blame him for being uncomfortable. I took Monday off from work so wife could work all day and I spent day consoling my son.

Wife balanced the checkbook and the $2500 cc bill which included the party on it could be paid in full.

My kids also got to open 5 gifts from people. They now have some toys to play with- they light up, make noise and keep them entertained. The best gift is a Buffalo Bills bean bag which they take naps in now and can climb on.

Both boys also ate their first meal from a high chair yesterday.

Here is one of the photos MIL got as a gift on her 60th B-day. Picure taken when boys were ~7 months old, they are almost 9 months old now.

I use a free internet radio station called pandora. If you listen to music on a PC, pandora will do a good job of two things:

Playing the artists you like
Finding other music similar to the artists

Here is a url

http://www.pandora.com/

I hope that works. I have been listening to pandora for more than 2 years.

You can customize the stations to play what you want. Tell it which songs you like or dislike as it plays them and it adjusts what it plays. For example last xmas I created a few holiday stations and around 40% of the songs I did not like. This year when it is playing those stations I like most of the songs it is playing based on my feedback.

FREE!

I went to my first HR block employee orientation on Saturday.

Interesting...

Part of the claim HR block makes is the following (paraphrased- I do not have the article in front of me)-

"We are in a unique position to offer lower and middle-class people financial advice".

I agree the ability to get objective financial advice at any income level is tough to come by, and tougher for poor and middle-class people.

My issue is HR block is presenting people with products which might charge a 100% interest rate (annualized) to get this advice. Not really objective, huh?

For example if a family making 30k comes to get a tax return of 3k-5k because of EIC and child credits, it probably cost them around $180 to get the return prepared.

If they choose to get a refund anticipation loan, a co-worker and I calculated the loan to rival that of a payday check cashing place (interest might be more than the amount borrowed) on an annualized basis.

I have decided to start my own financial planning business.

For now I am going to concentrate on 4 areas:
1) Taxes
2) Retirement saving
3) college planning
4) budget/spending

I am going to work on obtaining an enrolled agent status with IRS. I am also planning on taking my series 6 this summer (to provide advice picking specific securities, I need a series 6).

Others have advised getting an LAH to sell insurance as well- anyone here have that?

If you need to know the problems, check my last two blog entries.

http://jim.savingadvice.com/2008/09/09/rebuilding-the-ef-the...
http://jim.savingadvice.com/2008/09/08/ef-went-from-12k-to-1...

Wife and I are working every day to a solution which works.

We originally had 5 bank accounts, all joint, for various reasons.

First checking account was the one I opened when I moved here 11 years ago. Wife was added to this account around the time we moved in together, around 7 years ago. I had a savings account attached to that too. That account was at key bank.

When we sold our condo, we had a 30k check which needed to be deposited. Because of prior problems with depositing money at key (a large 5k surplus got spent without knowing what it was spent on a few years earlier), we created a new account at 5th 3rd. Part of the reason for this was 5th 3rd did not charge for electronic banking and electronic bill paying at the time. checking and savings accounts were opened.

Then 9/11 happened and there were rules about how many transactions a savings account can have, so the IRA deposits (which were 6-7 deposits each month) were causing some 9/11 violations and account fees. So we opened a second checking account for my IRA deposits.

So the end result was 5 accounts, each getting a fraction of each paycheck to pay various bills electronicly, by check or by automated withdraw.

We now have reduced it to 2 joint accounts and each of us will also have our own savings and checking accounts with debit cards.

Part of issue with the budget was I did not have a debit card in my name, so when crises hit, I did not have access to cash.

We each deposit $20 per check into our savings accounts and our checking accounts, deposit the same amount each to one of the accounts which pays most bills, and then the rest goes to the mortgage/IRA/car payment account.

I want the items which can be repossessed or foreclosed to be withdrawn from one account (car and house payments) so we know, worst case, which bills must be paid each month.

So after the EF has gone from 12k (3 4k CDs) to 1k left, a plan is needed to rebuild it. If you need to know why the EF was reduced, read this

http://jim.savingadvice.com/2008/09/08/ef-went-from-12k-to-1...

To complicate matters, we have a vacation planned for July of 2009 which will cost ~$2500 to disneyworld and in Aug of 2009 we will have a payment on my wife's lease which I am estimating at $4k (went over on milage).

We had to lease because wife travels too much to make buying a good deal (IMO). We are talking about buying the next one in August, we will see.

The household budget has a 20% savings rate built right in (401k for both and Roths are maxed for both). That same budget has 5k in extra disposable income which may or may not get captured.
$2500 of that would be the months my wife gets paid 3 times.

We plan to sit down each Saturday for next 8 weeks to do the checkbook, As we come in underbudget on things, my intention is to move that money to the savings account. I expect to get about $100/month doing this.

We cancelled the home phone line- saves us another $100/month.

I will work doing taxes for HR Block (I hope) Jan-March and I am estimating I take home about 3k.

$1200 from phone
$1200 from being underbudget
$3k from second job
1k already in EF
$2400 from 2 extra paychecks
That is $8800 of the 12k needed.

Simple things get us 2/3 of the way there.

If you read the forums you know where this is going.

Last weekend was probably a weekend I will never forget. Portions of this are edited for brevity.

On Thursday night (9/4) I found out my wife had ~6k in cc debt on a card in her name.
We had a brief discussion Thursday then a much bigger argument Friday morning (9/5). DS1 was also not tolerating feeds and needless to say the argument continued on the way to the hospital.

DS1 was admitted to hospital overnight while wife stayed with him. I took DS2 home and decided to do a quick cc check of my own.

2 of my 4 cards had a balance (1.9k and 1.7k). My wife had changed addresses on both cards so bills were being sent to her mothers- I did not know either card had a balance. Some of the balances were 18 months old or longer.

A much bigger discussion followed.

I liquidated 10k of the emergency fund I keep in CDs, paying about $40 in penalties to pay off the cc debt. Two of the cards were paid off on Sunday morning 9/7 and the third card will be paid off on 9/8 when I get home from work.

My wife and I discussed our household budget over the long weekend. She had been dreading the conversation and putting it off for months.

The first few conversations we had like this 7-10 years ago were tough- I had to tell her rent came before getting hair and nails done, and she was not used to that (her mom did not require her to pay rent before she moved in with me).

The last few have been real easy. She initiated this one because she wanted money for a vacation to disney world in July of 2009.

We sat down and plugged various numbers into our budget spreadsheet. I had a raise which had not been added in, and we decreased the phone bill from $100 to $55 by removing some options from the line. We need a phone line for home high speed internet- we have a satellite dish so roadrunner/dsl is not an option.

End result was we save 20% of gross pay and pay our bills. And have $5000/year left over after all spending is accounted for.

WOW- my last raise was only 3k and we increased Roths once the raise hit the bank account.

Needless to say, looks like our kids can meet Winnie the Pooh and Tigger.

As stated previously, my goal is to pay off my mortgage before my kids start college.

My twins are 5 months old at time of this post in September of 2008.

College for them begins in September of 2027 I think.

Our mortgage was originated in Dec of 2005, then refinanced in April of 2006 to get both loans (1st and 2nd mortgage) on fixed rate payment plans.

2nd mortgage is ~50k borrowed at 7.5%
1st mortgage is ~284k borrowed at 5.75%.

I need to pay both off more than 10 years early for this plan to work.

We currently round the 2nd mortgage payment up every billing cycle- meaning if we owe $385.85 we round payment up to $400. This cuts SIX YEARS off the payment according to the spreadsheet I ran.

In 2 years when my truck is paid off, the $700 truck payment goes to second mortgage. This will pay the second mortgage off in about 5 years from when I start the extra payments.

The $1100 extra ($400 2nd mortgage payment and $700 car payment) which will be available in 2015 goes to funding 3 goals:

1) Kids private school education- we don't like the public schools where we live, we estimate needing $400/month for both kids private schooling for elementary school.

2) New car fund for me. Probably $500/month going to this account

3) $200/month going to mortgage independance fund.

Mortgage independance fund is PRPFX- a mutual fund which should have about a 6% annual return and be relatively consistent in most market conditions.

My plan is to get this fund large enough to pay off the mortgage- might take 5 years, might take 10 or 15. Once this fund has enough money to pay down the mortgage, I will actually send the $200/month directly to the mortgage.

The risk before mortgage is paid off is liquidity- if I sent payment to the mortgage, I could not access the money. So by using an investment with intention to pay off the mortgage, when kids are 18 I either have a paid off house, a large taxable investment account, or both.

Wife's birthday is Friday and I need to buy her something. She does not want me to spend more than $150.

Most years in the past I get her clothes- she wears suits to work and I do a reasonable job picking out good ones. Her best 3 or 4 power suits were picked out by me.

Because we were going through some expensive fertility treatments last year at this time she did not want a gift... and because she was in hospital for my birthday she did not get me a gift either.

So I am going shopping today or tomorrow after work. Any of you guys out there- do you buy your wife clothes, or am I just too unique in that regard?

Many recent posts on the forums have people looking to get out of debt.

My generic plan:

List your gross income (60k for example)
Take 20% of the gross income.

(12k for this example)
The 12k is the amount per year to apply to debt (1k per month or 20% of monthly gross income applied to debt).

The remainder of the money (80%) should be marked for living expenses. I would include car loans for living expenses, and a mortgage as a living expense, so these bills can come from the 80%.

How you apply the money to the debt (snowball method, highest interest rate first, other) is a matter of personal prefernence.

Once the debt is paid off, I suggest taking the 20% debt payment and breaking this up into a 15% and 5% portion.

The 15% portion gets set aside for retirement.

The 5% portion gets set aside for short and mid term expenses.

How much do you pay for home internet? We currently have it thru Cincinnati Bell as part of our home phone (fuse is the high speed service we have now).

The phone bill is $100/month and we'd like to pay for only home internet for around $30 or $40. Anyone have good options for this?

How much does your family budget for vacations each year?

When I first started investing, most recomendations were to save 10% of gross income and have 3-6 months expenses set aside for emergencies.

I have come to the conclusion this general advice is not good enough.

My new paradigm is save 15% for retirement- before the match, and have an additional 5% saved in taxable accounts (each month) for emergencies in addition to having 3 months expenses in the bank.

Too many bills come up each month and year which cannot be reliably budgeted for. Car repairs, child hospital bills and perscriptions also come to mind.

Currently more than 16% of our gross income is going to Roth or 401k accounts (with the raise I have not calculated the new annual saving %- I will do that at tax time).

Curious if anyone out there does anything similar?

New babies means a new budget. Wife and I are working through it over next few weeks.

Because they are preemies, we have decided to avoid daycare for first 9 months. Our boys are at high risk of infection and sickness, so we need to protect them from diseases like RSV and other illnesses.

Issue 1- tax return is expected to be 4k (refund in 07 without kids was 3k+). The plan is to change wife's withholdings and bring home about $400 more per month.

Issue 2- wife's student loans were paid off with 2007 tax return. Monthly savings of $220.

$620/month should pay for diapers and formula.

That should allow the Roth's to stay in the budget at $875/month for 2008 and maybe 2009.

Issue 3- I am losing 10k cash income per year from soccer because my work schedule is moving from 8-5 to 2-10. The benefit to this is we will not need to pay for daycare.

Issue 4: My wife's car lease is up in Aug of 09. That is $350/month we need to keep in budget to get her another car. She puts around 50k miles on car every 3 years for work (travels quite a bit locally). More than likely another lease. We will owe close to 4k when we turn this lease in as well.

Issue 5: My truck payment of $700 will be done in Aug of 2010. This money comes into budget for something.

Suggestion 6: Take the $700 truck payment and apply it to 2nd mortgage (7.5% interest rate). 2nd mortgage is 55k or so right now. My math had the $700 paying this off in 5-7 years at around 2015.

Suggestion 7: take the $700 car payment and $400 mortgage payment and start a multiprong weath building strategy:
$300 for college fund twin A
$300 for college fund- twin B
$500 into new car fund for me
All $1100 is actually the same account because all needs are medium term. PRPFX is fund I use for this account (this is also the mortgage paydown account/ secondary emergency fund).

Overall plan up to this point is to retire at age 53 (kids will be 18 then). We have 160k already set aside, and set aside close to 17k per year for retirement.

Thoughts?

2007 tax year summary:

Married filing jointly

Gross Income 103k
Adjusted Gross Income 65k
effective tax rate 8%

That was my lowest effective tax rate since working full time. I am curious what others effective tax rate is?

My wife and I had an irritable discussion. We need to free up 13k per year to pay for day care (twins are due in June- babies 1 and 2 for us).

We found most of it:
$625 (cancel my Roth IRA payment each month)
$250 (cancel wife's Roth IRA payment each month)
$220 (pay of wife's student loans early.

I remember a budget conversation 2 years ago and I had mapped out a plan to pay off wife's student loans by April or May. Then a few months after the conversation she changed her mind. Now that we need the money the discussion was not pleasent.

It will take $3000 to pay off the loans (to free up the $220/month needed). Loans are small ($600, $700, $400, $700, $550 type ammounts) with low interest (7%).

It's tough when one spouse plans (me) and one does what she feels like (wife).

Irritable discussion- that's our PC term for we did not agree.

Got a letter from the IRS yesterday. 2005 tax returns were incorrect. I sold $6500 worth of stock and never received the 1099. We moved twice between the sale and the tax return (the sale was part of our house down payment).

JP Morgan did not have our updated address.

In addition to that my wife had some stock which was liquidated from toysrus. My wife is 32. She worked at kidsRus when she was 17-18. 1099 was not received either. This was a $31 tax hit.

Came home a few days ago and there were 2 credit card bills waiting.

One was from a business trip my wife took. Bill was $1200 and needless to say her expense check was slightly more than half the bill.

One was from a soccer purchase I did last October and I gave my wife the cash to pay the bill off.

Because she does the checking account month to month I did not see these bills until this week. OUCH.

Add to that our bank was charging us $5 for each of my 7 mutual fund purchases in my IRA, plus a $15 excessive transaction fee which I just caught.

I went ballistic on Tuesday. The wife was not happy at how upset I got over what she called "little" things.

Since then, called the bank and they waived all the fees.

Tapping into emergency funds to pay off the credit cards. I am more relaxed now, but I didn't sleep too well until this was taken care of.

There are 2-3 threads going with pay down mortgage or investing... and when it "makes sense" to pay down mortgage.

All calculations were done with a spreadsheet downloaded from microsoft. I modified sheet, some, but all this could be done with standard sheet and somewhere to write down if then answers.

Issue #1, being debt free has a psychological value, and this post is not meant to demean, replace, or suggest what that value is.

Issue #2, paying down a mortgage is "risk free" rate of return. Whatever loan rate is (5%, 5.75%, 6%) is the lowest risk investment you have, assuming savings accounts, T Bills and other fixed income securities yield less than the interest rate on mortgage.

The numbers

100k mortgage, 6% interest rate. Payment is $599.55. First month is $99.55 principal and $500 interest. Total 30 yr interest payment is $115,838.19. Loan repyament period is 360 months (30 yr fixed).

Situation 1. pay extra $50 each month. Overall interest reduced to $91,268 (saved about 14k), repayment period shrunk to 295 months (saved 65 months*599.55=38970.75 of loan payments.

Total extra payment was 295*50=$14750.

situation cost $14750 over 295 months to save $63,540 over 65 months.

situation 2. Pay $100 extra per month for first 10 years. Overall interest reduced to $82,974.02 (saved $32864). Repayment period shrunk to 286 months (9 months shorter than above). Saved 74 months*599.55=$44,366.70 in payments.

Total extra payment was 120*100=$12,000 (2750 less than situation above).

situation cost $12000 over 120 months to save $77230 over 74 months.

Meaning the extra payments were fewer, cost you less out of pocket, and saved you more money. This is because these payments were applied eariler in loan period. Early repayments count more than later repayments.

situation 3. Person pays $200/month starting in year 20. overall interest paid is $109,846 (27k more than previous situation, 6k less than standard 30 yr fixed). repayment period shrunk to 323 months. This is nearly 40 months more than previous situation.

The extra payment in situation 3 was $16,800 (the highest of the 3 situations). Because the extra was paid at the end of the loan, it did not "compound" in reverse as much as lower payments applied earlier.

Does anyone out there have an HSA with a high deductable health plan?

Second question- does it work well?

Third question- do you have kids and how old?

Curious how many sources of income people out there have?

I work my day job, which pays the bills. I train soccer teams at night which nets ~9k a year. This goes to vacations, savings and other frivoulous spending. My wife also works a day job.

How do others supplement their income?

You can measure financial success many different ways.

1) No debt
2) Amount of discretionary Income
3) Savings/ Retirement goal
4) Pay off Mortgage
5) Net worth
6) The number of people which ask you for money.

My personal measure of financial success is to pay for a new car in cash.

My intermediate steps to accomplish this is simple. Each time we buy a new car, we finance it for one year less than we did before.

In 1995 I bought a new Saturn SC2 for 66 months of financing.
In 2000 we bought a new Ford Focus. 4 years of financing.

In 2006 we bought two new cars on the same day (Honda Ridgeline and Honda Accord). We cheated- one car was financed for 4 years and one financed for 3 years. When the cars are paid off the money budgeted for the payment is going to accumulate in the savings account until we need our next car (6 years later).


The next car is a two year payment plan. Bank the payment years 3-10.

The car after that is a one year financing. Bank payment years 2-10.

The next car will be paid in CASH!

The plan is simple.

Create a budget and use the various accounts to set up automatic payments.

4 payments come out of one account (2 IRAs and 2 mortgage payments)

~5 monthly utilities come out of another (all paid electronically or automatically).

~4 bills which will eventually "go away" are paid from another account. When the bills go away, this account starts to accumulate money.

any weekly expense must be paid in cash. If we don't have the money, we do without. We don't need to track every penny we spend, we just need to know how to make $100 in gas money last two weeks.

I drive a full size pickup everywhere we go... so $50 gas/week is not always easy.

We set aside money for retirement prior to doing anything. Right now it's 20% (or close) of gross income. As salary increases, this % goes down (IRA limits favor lower-middle income earners).

Cash accumulates in accounts slowly. Our monthly emergency is the IRA payments. We could stop an IRA payment and save $900 that month. There is always one mortgage payment in bank as well.

My emphasis in our house (between my wife and me) is to keep spending on budget.

There are 2 or 3 things which influence the budget and how I do things.

First is multiple bank accounts are a good thing. We have 4 bank accounts (at two different banks). Checking and Savings Accounts used for various reasons (more on this later).

Second is debit cards are BAD things. Cash rules.

Third, over budget and under pay to create a minimal cash buffer.

We look at out bills and organize them-
long term debt (mortgages), permanent monthly expenses (like IRA's), permanent monthly bills (like electric, gas, cell phones, insurance, home phone, satellite dish), mid term monthly expenses (car payments) and permanent monthly CASH expenses (gas for cars, grocery, hair appointments).

Long term debt and permanent monthly expenses come out of one SAVINGS account. In our case this budget is $1660 for 1st mortgage, $430 for second mortgage, $480 for escrow (prop taxes and insurance), $625/month for my Roth IRA and $350 for my wife's Roth IRA. The $625 maxes out IRA for me in June, the remaining months this is accumulating a cash buffer in this account.

Permanent monthly bills come out of a checking account. We overbudget as much as possible (gas/electric bill budget is $300/mo, we don't come close to this 6 months a year in Ohio). There is no debit card for this account, so this money accumulates "slowly".

We have a second SAVINGS account for mid term monthly bills (our two car payments). We also have our cell phone coming out of this account... When a car gets paid off, this account accumulates money.

We have a second checking account which is for cash expenses. Groceries, Gas and hair salon are cash expenses. This account zeros out the day we withdraw the cash.

We have two incomes.

I get paid twice a month. $1700 from each of my paychecks get put into account for the mortgage and IRAs. The rest is in the checking account we pay monthly bills out of.

My wife gets paid biweekly. This complicates calculations... if you look at our spread sheet for a given month we may run one account at a deficit (until we hit that month where she gets 3 pay checks). But trash bill comes once every 3 months, as does sewer/water... so it evens out over course of year- not to mention electric bill is not as high as we budget. But it's important to look at this at both weekly/monthly/yearly expenses relative to paydays.

We calculate how much cash we need for groceries ($75/week), hair ($20/week) and gas ($100/week), then make sure $390 from each of my wife's paychecks is put into the checking account. We withdraw it all in CASH. It must last two weeks. My wife gets her hair done 6-8X per year, so that $20 adds up to the real $90 hair appointment for her and $10 hair cut for me.

Conventional wisdom suggests you want 2-4 months "cash" for expenses in event of emergency (loss of job, other emergency).

This is good advice... my advice suggests that the "cash" portion of this can be better utilized within a budget.

Goal #1 is create a budget
Goal #1a is save 10% as part of that budget.
Goal #2 is remove debt. There is no "good debt". There is bad debt, worse debt and "I can't believe I financed that" debt.
Goal

everything else depends on the budget.