Just an opinion of mine I’d like to throw in

I would heartily recommend making sure you have a six FULL month EF. You said $18-20k would cover 6 months of bare-bones, 4-walls.

So regardless of what the final amount ends up being, I would:

1. Pay off the debt.

2. Put six FULL months aside for FFEF.

3. Make sure you are putting the full 15% at least into retirement. I would personally in your situation do dh’s 401k 7% up to the match, the 6% that’s going into your pension. After that, I’d set up a Roth IRA for each of you and throw the rest of your 15% into there. If some left over, THEN go back to your 401k without a match for the rest.

4. With what is left – will you be needing to beef up any envelopes? I’d recommend putting 2/3rds of what is left into envelopes for down payment for a house, saving for an automobile, any other envelopes that need it. Put the other 1/3 into starting the kids college funds. At that point, you can possibly contribute to those accounts in some capacity on an ongoing basis (as part of your budget).

5. Then you’ll be at Baby Step 6… and you will want to keep saving money for paying for a house/paying down mortgage when you do get one.