‘I am leaning to creating an emergency fund first’: Should I prioritize maxing out my Roth IRA, paying off student loans, or building an emergency fund with my surplus income?

Hi Money Minder,

So, I just graduated and landed a data analyst gig making 75k, living in a low-cost area with rent at 500 bucks – lucky me! My car’s paid off and I don’t have many bills, but I’ve got 26k in student loans hanging over me.

Now, I’m torn on what to do: should I focus on paying off the debt, max out my Roth each year, or build an emergency fund? I think my gut says to start with the emergency fund, just in case things hit the fan. Should I then switch the 563 bucks I put into my Roth into my loans? Right now I’m paying 360 bucks per month on the loans, but at this rate, I won’t be done till 2030. What’s your take on this? Thanks a bunch!

Seeking Advice

Farewell

Response from THE MONEY MINDER:

Hello There,

Congratulations on graduating from college and landing a job as a data analyst! It’s great to hear that you are thinking about your financial future early on. Given your situation, I would recommend starting by building up your emergency fund. Having a safety net to cover expenses in case of unexpected events like losing your job is crucial for financial security. Aim to save at least 3 to 6 months’ worth of living expenses.

Once your emergency fund is established, it might be beneficial to reevaluate your student loan repayment strategy. While it’s essential to make your monthly payments, consider increasing the amount you put towards your student loans beyond the minimum payment. By allocating the extra funds towards your loans, you can pay them off quicker and potentially save money on interest in the long run.

Regarding saving for retirement, continue contributing to your Roth IRA, especially if your employer doesn’t offer a retirement plan. However, you could consider adjusting the amount you contribute to find a balance between managing your student loan debt and saving for the future. It’s crucial to track your progress, reassess your financial goals periodically, and adjust your strategy as needed.

In summary, prioritize building an emergency fund, increase payments towards your student loans, and continue contributing to your retirement savings. Finding the right balance between these financial goals will set you on the path to financial stability and long-term success. Remember, it’s essential to have a clear plan in place to manage your finances effectively. Best of luck on your financial journey!

Farewell from THE MONEY MINDER