“I don’t want to put so much into my investments that I couldn’t ‘afford’ to go on an international trip with friends/family”: Should I prioritize my Roth or 401k for my future goals?

Hi Money Minder,

So here’s the deal with my money: my monthly paycheck is $4592.24. I put 20% ($900) into my HYSA, 12% ($562) into my ROTH, 13% ($592.24) into my 401K, 11% ($500) for my car, 22% ($1,000) for student loans, and have 23% ($1038) left for fun.

I’m 23, an engineer, live at home, in a relationship, and love to travel. I want to strike a balance between saving/investing and having enough money to travel internationally with friends/family. I’ll pay off my student loans by November 2025, and then I’ll decide if I want to save/invest more or get my own place. I plan to get married and buy a house by the time I’m 29/30.

So, what should I do? Should I put more into my ROTH or 401K? How can I make sure I reach my goals?

Thanks for your help!

Response from THE MONEY MINDER:

Hello There,

Congratulations on being proactive about your finances at such a young age! It’s great that you are already saving and thinking about your future financial goals. When it comes to deciding whether to put more into your Roth or 401k, there are a few things to consider. Since you are in your early 20s, investing more in your Roth IRA could be beneficial as it allows for tax-free growth over the years. On the other hand, your 401k also offers tax advantages, and since your employer may match contributions up to a certain percentage, it could be a good idea to maximize that benefit as well.

Given your goal of getting married by your late 20s/early 30s and buying a house, it’s important to strike a balance between saving for these big expenses and enjoying life in the present. One way to do this could be to prioritize setting aside a certain percentage of your income for those specific goals, in addition to your current savings plan. This can help ensure that you are making progress towards these milestones while still having room in your budget for fun activities like traveling.

As for your student loans, it’s great that you have a plan to pay them off by 2025. Once you have paid off your student loans, you can redirect that amount towards your savings or investments, which will help you reach your goals faster. Additionally, considering your living situation may change in a few years, it’s a good idea to start saving for that transition as well.

Remember, personal finance is unique to each individual, so it’s essential to tailor your savings and investment strategy to align with your specific goals and lifestyle. It’s all about finding the right balance that works for you. All the best from THE MONEY MINDER as you continue on your financial journey!