What to do with extra money after bills are paid
Dear Helaine: I am married with two young kids. Our only debts are our mortgage and $45,000 in student loans at 5.5 percent interest.
For the first time, I’m making enough money to have the First World problem of trying to figure out how to prioritize where it goes. I max out my 401(k) every year, and my wife and I have about six months in emergency cash available if things went really south. So, do I pay off the student loans? Do I invest it? Put it in a 529? Something else?
I also have a small investment in a small business, and there is the potential to increase that as well. All in all, I’m just trying to make sure I am doing what’s best for the long term with this money and future funds that come in. — First World Problem
Dear First World Problem: I notice one thing you don’t mention here. Is your wife also contributing to or maxing out her retirement accounts? If she isn’t, I’d make that the first priority. Otherwise, I don’t see your dilemma as an either/or issue. Instead, I would think of these different goals as buckets and divide your funds accordingly.
I suspect it will give you peace of mind to begin more aggressively paying down your student loan debt. Do so. That’s one bucket. It would also, I am guessing, give you peace of mind to open and begin funding 529 plans for your children’s education. So put some money in that bucket, too.
As for the small business, I can’t make that call for you. If you believe it has real potential for future growth, and its current revenues justify an additional investment, that can serve as yet another bucket.
But there’s one other thing, and it’s the most important: I notice you say nothing about fun here. As the cliche goes, man does not live by bread alone. While I would never encourage anyone to indulge in lifestyle creep, I think, based on your description, you could afford to take vacations, dine out or otherwise indulge in a few expenditures that would make the entire family happy. Make sure you do so.