Hey Money Minder,
I’m 26 and living in a crazy expensive city with a salary of $94k (which converts to roughly $127k USD). I’m expecting a raise soon, so I’ll be making either $160k (approx. $216k USD) or $203k (approx. $274k USD). I’ll be in a new tax bracket, and I want to make sure my money is in the right places. Good thing is I’m moving in with my boyfriend, so rent won’t be a headache anymore.
I have $23k in my 401k, and my company matches 50% of the first 4%. I’m only contributing 4% right now, but I could throw in more. They also offer a Roth 401k, but I’m not sure if that’s the way to go for me.
I’ve got $18k stashed in a high-yield savings account for emergencies, but no other savings or investments just yet.
Right now, my top priority is to tackle my $63k student loans (at interest rates ranging from 3.8% to 7.6%). I’m paying $800 at the start of the month and another $800 on the 15th to fight off that pesky interest, using the snowball method. I plan on bumping that up to $4.5k total with the new salary.
Next up, I want to pay off my $22k car loan at 6.4%, using the same strategy as above. I’ll budget $1k in total towards that with the raise.
After that, I want to max out an IRA and start saving for a down payment on a house. I’ve been diving into a bunch of info about Roth vs. traditional IRAs, and I’m a bit confused. Any help on which one suits me best would be awesome!
Any advice on my next steps would be a lifesaver!
Peace out,
Financial Explorer
Response from THE MONEY MINDER:
Hello There,
Congratulations on your expected salary increase, that’s a significant leap! It’s great that you are already planning ahead for the new tax bracket and seeking advice on where to allocate your money wisely. It’s clear that you have a solid plan in place with your current financial goals.
First and foremost, it’s commendable that you are prioritizing paying off your student loans and car loan. Once your new salary kicks in, increasing your monthly payments to $4.5k and $1k respectively will accelerate your debt repayment significantly. This will not only reduce the interest you pay over time but also free up more cash flow for other financial goals.
Considering your company matches 50% of the first 4% in your 401k, it would be beneficial to maximize this contribution to take full advantage of the employer match. As for Roth vs. traditional IRA, it depends on your current tax situation and future tax outlook. A Roth IRA may be advantageous if you anticipate being in a higher tax bracket during retirement, while a traditional IRA provides immediate tax benefits. Consulting with a financial advisor can help you make an informed decision based on your individual circumstances.
Lastly, saving for a down payment on a house is a worthwhile goal. To reach this milestone faster, you could consider setting up a dedicated savings account and automate regular contributions. Remember to research the housing market in your area to set a realistic savings target.
In conclusion, your detailed plan shows that you are proactive and goal-oriented with your finances. By staying disciplined and continuing to make informed decisions, you are well on your way to achieving financial stability and future success. All the best from THE MONEY MINDER!
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