Your Income is Key
Dear Dave,
I have $100,000 in student loan debt. With such a large number, is there a special place in your Baby Steps program?
Jules
Hi Jules,
I hope you have a good, big buck to fight off that pile of student loan debt. However, I have seen worse situations. I’ve talked to people who went into $200,000 in debt for a four-year degree in a field where they were going to make $45,000. Yes, that kind of thinking and behavior exists, and it is irrational.
The fact that it’s a huge amount of student loan debt doesn’t change anything. The 2nd step of the baby is when you pay off all the debt outside of your house. So, don’t let this student loan debt pile up for years and years. You have to focus and be strong in managing your money. That means living on a strict, basic monthly budget only. After that, start throwing every nickel and dime you can scrape together, and save to pay off those student loans as quickly as possible.
Your income is your greatest wealth building tool, Jules. You can’t save, again plan for the future, when all your money goes out the door to pay off debt.
— Dave
Get a Good Money Market Account
Dear Dave,
My wife and I have absolutely no debt, and it’s our first mortgage. We currently have about $140,000 in savings, and would like to buy a home with cash if time permits. Where should we put our money, so that it will work for us while we save more?
Andy
Hi Andy,
If I were in your shoes, and maybe looking at a three or four year window, I would just park the money in a good money market account. You won’t do much with it, but your money will be safe. I mean, all you want is a smart place to hide it for a while.
When it comes long term investing, I am a fan of growth stock mutual funds. The problem with that in your case would be market volatility. By the time you’ve saved up a lot of money, and you’re spending time deciding on a home, the market may be down.
You are both in a good place financially right now. The way you are, just think how nice it will be in a few years to have a new home again don’t be in debt!
— Dave
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