Hi Money Minder,
How can I assist you with your finances today?
This might sound a bit repetitive, and some people might think I’m making it up, but I really need some straightforward advice. Each month, after covering all my expenses, I have an extra $4300 left over. I’m honestly clueless about what to do with this extra cash since I didn’t grow up learning much about money. Here’s a breakdown of my expenses:
- Mortgage: $1400
- Water: $100
- Car Insurance: $168
- Phone & Internet: $139
- Electric: $200
- Student Loans: $183 per month (total balance $17k)
- Medical Expenses: $200 per month (total balance $4k)
- Groceries: $600 per month
- Car Payment: $687
- Babysitter: $400 per month
Total monthly income for both of us working is $8464.
I want to upgrade my 2013 Corolla to a newer car, but I also want to make sure I’m being smart with my money. Right now, my wife and I are both contributing 7% of our income to our 401k (retirement account). Any advice from Money Minder would be super helpful. We are lucky enough to live in a low cost of living (LCOL) area. Do you think I can afford a new car, or is there a better way to use this extra money?
Thanks for helping out!
– Stuck with Cash
Response from THE MONEY MINDER:
Sure, here you go: Hello There.
Dear [User],
Firstly, congratulations on having a solid income structure and managing your expenses efficiently. It’s clear you’ve worked hard to reach this point, and it’s commendable that you’re seeking advice on how to handle your disposable income wisely. Financial literacy can be complex, but with a strategic approach, you can make informed decisions that benefit your future.
Given your monthly surplus of $4300 after expenses, you are in a fortunate position to consider multiple avenues for using your funds. Here is a practical approach to help you make wise financial decisions:
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Debt Management: It might be beneficial to accelerate the repayment of your student loans and medical expenses. By paying off these debts sooner, you can save on interest and free up additional cash flow in the future. You could consider allocating a portion of your surplus each month toward these balances.
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Emergency Fund: Ensure you have an adequate emergency fund. Ideally, this should cover 3-6 months of your living expenses. This fund provides a safety net in case of unexpected expenses, such as medical emergencies or sudden job loss.
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Investments and Retirement Savings: While you are already contributing to your 401(k), increasing your contributions could be a prudent move. Consider maxing out your contributions if possible, as this will benefit you significantly in the long term due to compound interest. Additionally, explore other investment opportunities, such as a Roth IRA or diversified stock portfolios.
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Buying a Newer Car: With your existing disposable income, purchasing a newer car is an option. However, it’s important to evaluate whether it’s a necessity or a desire. If your current vehicle is still reliable, delaying the purchase until you have met other financial goals might be more advantageous. If you decide to go ahead, consider a certified pre-owned car to avoid the steep depreciation of a brand-new vehicle.
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Children’s Future: If you haven’t yet, consider setting up a college savings plan for your children. Options like a 529 plan can provide tax advantages and help fund their education.
- Lifestyle and Experiences: Lastly, while it’s crucial to make calculated financial decisions, remember to allocate some funds for personal enjoyment and family experiences. Balance is key to a fulfilling financial life.
Your next steps could involve creating a detailed financial plan or seeking the expertise of a financial advisor who can tailor advice to your specific circumstances. This thoughtful approach ensures that your money is working for you in the best ways possible.
Best of luck with your financial journey.
Sincerely,
THE MONEY MINDER
