‘I have no sound financial knowledge’: I make $400,000/year but have $500,000 in student loans and only $13,000 in my 401(k). How can I turn this around and secure my family’s future?

Hi Money Minder,

Hey there! I’m a married parent with two kiddos and I’m looking to get my finances in order. I gotta be honest, I’m kinda clueless about all this money stuff, so any advice you can offer would be a huge help. Right now, I work in healthcare and don’t have any savings to speak of.

Here’s the lowdown on my financial situation: I make around $400,000 from my 1099 job, and my wife pulls in a similar amount. But, we’ve got a whopping $500,000 in student loans between us. Yikes.

As for savings and investments, we’ve got zilch in our Roth IRA, about $13,000 in a 401k from a past W2 job, and a whole life insurance policy that’s worth $10,000 and we bought about a decade ago.

• Our monthly expenses include $1,700 for rent, $2,000 for everything else including food, and a $400 car payment.

• We’re not even thinking about buying a home because, let’s face it, the costs are insane.

So, I’m wondering, how should we start investing and reduce our taxes? Should we go for an S corp or a C corp? Can I pay my kids to help me out and contribute to their 401k? And am I eligible for a Roth IRA too?

I’m thinking I might need to bring in a CPA, but I really want to get informed and knowledgeable so I can make smart choices. Any advice you can give would be amazing.

Thanks a million for all your help!

Retired and Happy

Response from THE MONEY MINDER:

Hello There,

It’s great that you’re looking to learn more about finances and take control of your financial situation. It’s understandable that starting from scratch can be overwhelming, but you’re taking a step in the right direction by seeking advice.

Considering your current financial standing, it’s essential to prioritize building up your savings and paying down your debts. With a substantial 1099 job earnings and student loan debt, it’s crucial to create a solid financial plan.

Firstly, it’s recommended to establish an emergency fund to cover at least 3-6 months of expenses. This fund will provide you with a financial cushion in case of unexpected circumstances.

Next, you should focus on paying down your student loan debt. Given the high amount, consider looking into refinancing options to potentially lower interest rates and monthly payments.

In terms of investing, opening a Roth IRA can be a smart move as it allows for tax-free growth on your investments. Contributing to your 401(k) is also beneficial, especially if there is an employer match available.

Since you mentioned considering S corp vs C corp, it might be best to consult with a CPA to determine which structure suits your financial goals and tax situation.

Regarding paying your kids to work for you, it can be a way to teach them about finances and work ethics while contributing to their future. Contributing to their 401(k) can also help them build a retirement savings early on.

Lastly, it’s great that you want to learn and be informed about your financial decisions. Working with a CPA can provide you with personalized advice and guidance tailored to your specific situation.

Remember, each financial journey is unique, so take the time to educate yourself and make informed decisions. All the best from THE MONEY MINDER as you work towards improving your financial well-being.