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Question:


I just graduated college with student debt. Should I prioritize paying the debt down, funding a raining day fund or funding a retirement account?
-Sunspot


Answer:


There’s a sensible school of thought that says you should take steps to reach every one of your financial goals, even if some of them are advanced in only a token way, so that you can feel as though you’re making at least some progress. So you shouldn’t take an either/or approach. As for which of your three should be the top priority, assuming you work – or else what income is there for you to save? – you’ll probably have to start paying off your student loans. Whatever minimum amount is due, that’s the first payment you’ll make every month. You may not want to pay more than that because of the significant benefits of a retirement plan, either an individual retirement account or especially a 401(k) at work that your employer also contributes to. You should contribute the maximum allowed by your workplace plan, if there is one, or else the $416.67 a month that you’re allowed to contribute to an IRA while obtaining the full tax deduction ($5,000 a year). Whatever disposable income you have left, you can set aside for emergencies. If you don’t have anything left after your loan payment and retirement savings, then you might want to decide on a modest amount, even $50 a month, to save for emergencies while putting aside that much less for retirement.

-Conrad de Aenlle



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