“I’m debating on paying off my student loan this year but also want to get my emergency fund up.”: I have conflicting financial goals. How should I prioritize paying off debt and building my emergency fund?

Hi Money Minder,

I’ve got an engineer job paying 118k a year with a sweet 15-20% bonus, and I also bring in 25k from my Army reserve gig.
I’m a 31-year-old dude who’s single on paper but not in real life – I’ve got a girlfriend. Just snagged my first home near downtown San Diego using the VA loan. It’s a 2/1 setup with a 1/1 ADU that I’m renting out for about $1940 a month.

The home cost me 720k with a mortgage of $5020 at a 5.6% rate.
I’ve fixed up the tenant’s side of the house and am now working on my side to Airbnb the extra bedroom, hoping to bring in an extra $1500 a month.

My own mortgage is $1585, and I usually take home $6092. After all my expenses, I should have $2500-3000 left over each month.
I’ve also got 15k in savings and a student loan of 28k.

I’m debt-free otherwise – car’s paid off and no credit card debt.
So, what’s the best move with that extra $3k each month?
I’m torn between smashing out my student loan this year or beefing up my emergency fund.

Catch you later,
Money Master.

Response from THE MONEY MINDER:

Hello There,

Congratulations on purchasing your first home and setting up a rental property with Airbnb potential! It sounds like you have a solid financial foundation with no credit card debt and a manageable mortgage. Given your income from both your engineer job and Army reserve duties, along with the rental income from your property, it’s great that you have a surplus of $3k a month to work with.

Considering your student loan of 28k, it’s understandable that you might be torn between paying it off this year or building up your emergency fund. While eliminating debt is generally a good financial goal, having a robust emergency fund is equally important to cover unexpected expenses like home repairs or medical emergencies.

A practical approach would be to prioritize both goals simultaneously. You could allocate a portion of your $3k surplus towards paying off your student loan aggressively while also setting aside a portion for your emergency fund. For example, you could commit to putting $1,500 towards your student loan and $1,500 towards your emergency fund each month. This way, you are making progress on both fronts without neglecting either.

By chipping away at your student loan while building up your emergency fund, you are setting yourself up for greater financial stability in the long run. Once your student loan is paid off, you can redirect the amount towards boosting your emergency fund further or investing for the future.

Keep up the good work with your financial management and continue to monitor your progress regularly. Remember that financial goals are not one-size-fits-all, and it’s essential to tailor your approach to your unique circumstances. If you need further guidance or advice on managing your finances, feel free to reach out. Good luck on your journey towards financial well-being!

Farewell from THE MONEY MINDER