How should we prioritize retirement, student loans, house?

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scientifics
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How should we prioritize retirement, student loans, house?

Postby scientifics » Fri Feb 08, 2013 7:19 am

My wife and I are newlyweds. We currently have 6 months' emergency fund (3 months are currently in a CD, and 3 months in a high-yield savings account.) We are contributing to get the full match in her 401k. I don't have any retirement accounts available at work.

How should we prioritize our extra money each month? Our only debt is ~$14k left on a government student loan at 6.8% interest.

Here are the options I can think of:

-Pay extra towards the student loan
-Increase our emergency fund
-Put money away for a down payment for a house (we hope to buy in 2-3 years)
-Put money in a Roth IRA (my wife's 401k has really high fees and we will definitely be in a higher tax bracket when we retire, so the Roth seems to be the way to go for extra retirement money after we take advantage of the full 401k match)

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Greenewashed
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Re: How should we prioritize retirement, student loans, hous

Postby Greenewashed » Fri Feb 08, 2013 7:45 am

scientifics wrote:-Pay extra towards the student loan How fast could you pay it off? If a few months, this would be my choice. You're getting a great risk-free rate and can then free up the cash flow for your other goals. If it would take years, it would mean putting your other goals on hold.
-Increase our emergency fund This depends on your risk - are your jobs stable? Do you have good health insurance? Do your parents have enough assets and insurance to take care of themselves?
-Put money away for a down payment for a house (we hope to buy in 2-3 years) This is a good choice. The more cash you have, the more options you have to avoid PMI, buy a fixer-upper, etc. Again, this depends on how much extra income you have each month and how much the house you'd want to buy would cost, etc.
-Put money in a Roth IRA (my wife's 401k has really high fees and we will definitely be in a higher tax bracket when we retire, so the Roth seems to be the way to go for extra retirement money after we take advantage of the full 401k match) IMO you should both be saving for retirement. Roth IRAs are a good choice because you can take your contributions back out at any time without tax or penalty. If nothing else, consider opening Roth IRAs for each of you at a bank and putting your emergency fund money in there. ING (now Capital One 360) offers IRAs and your money is held inside an insured savings account. It's there if you need it, but you are taking advantage of the tax-sheltered retirement space if you don't.

Tightwad
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Re: How should we prioritize retirement, student loans, hous

Postby Tightwad » Fri Feb 08, 2013 5:44 pm

scientifics wrote:Here are the options I can think of:

-Pay extra towards the student loan
-Increase our emergency fund
-Put money away for a down payment for a house (we hope to buy in 2-3 years)
-Put money in a Roth IRA (my wife's 401k has really high fees and we will definitely be in a higher tax bracket when we retire, so the Roth seems to be the way to go for extra retirement money after we take advantage of the full 401k match)

I'd switch the 3rd & 4th options in the pecking order.

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bejki
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Re: How should we prioritize retirement, student loans, hous

Postby bejki » Sat Feb 09, 2013 4:30 pm

I've often found myself in your situation when determining how to manage my money. It's really a juggling act and one thing I learned is that it is okay to change my priorities as time goes on. When I was just getting started with saving money and paying off debt, I was constantly re-evaluating and making adjustments with how I rationed the money. At the end of the day all of these goals are working to put you in a better financial situation, so if you feel like you made a mistake in prioritizing them 6 months down the road, then no harm was done and you can just make the necessary adjustments.

I would start saving for your retirement now though (even if it isn't your top priority).
"I figure you have the same chance of winning the lottery whether you play or not."
Fran Lebowitz

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