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You made it through school. You’re a young professional working in the career you were trained for, and through your work you’re finally earning enough money to have a discretionary income.

You really want to do something about your student loans. You’d like to have a bit of money in the bank, too. And at some point, you know you should save for retirement.

But when there’s only so much extra to go around, what should you do with it? Should you pay off debt, build up savings, or invest?

No matter what you decide, it’s a win when you’re making financial progress. But here are a few tips and ideas to help you prioritize these financial goals:

Stash Away Emergency Cash

If you’re just starting to get on your feet, you probably know what it’s like to have an unexpected expense and not know exactly where you’ll find the cash. Instead of relying on a credit card, start by putting a bit back towards an emergency fund.

Get started with $1,000 in an emergency fund – or one month’s worth of pay if you feel that sum isn’t too overwhelming. You’ll want more emergency savings eventually, but this is a great place to start.

Get Rid of Toxic Debt

While all debt is risk, all debt is not created equal. Student loan debt is not often considered toxic because the interest rate isn’t sky-high – unlike interest rates on things like credit cards.

With high-interest credit card debt, it’s important to make paying it down a priority. When you’re paying 20% in interest every month and just making the minimum payments, it’s really hard to get ahead.

Once you’ve built up your emergency fund, send the extra money straight to paying off high interest rate debt.

Invest in Tax-Advantaged Accounts

Once you have a bit in savings and your debt is headed in the right direction, it’s time to tackle investing for retirement. The best place to stash the money is in a tax-advantaged account.

Some employers will match retirement contributions up to a certain percentage of salary. If your employer offers this match, that’s the first place to invest. It’s free money!

The exact type of account you’ll use will depend on your employment:

  • If you work at a company, you probably have access to a 401(k) plan or a Simple Individual Retirement Account (Simple IRA)
  • If you work for the government or a non-profit, you might have access to a 403(b) or a Thrift Savings Plan (TSP)
  • If you are self-employed, look into a Simplified Employee Pension Plan (SEP)

You can also take advantage of a traditional IRA or a Roth IRA, whichever tax advantaged account makes more sense for your situation

Create a Personalized Plan

Once you’ve tackled these three big moves, you’re saving, paying down debt, and investing – all at the same time.

From here, there’s not a single right answer that will fit everyone’s financial situation so consider what you’d like to accomplish with your money and allocate the extra accordingly.

Remember, it’s always possible put a little bit of money towards multiple goals so you can repay debt, save, and invest at the same time.

For example, send 70% of your discretionary income to your student loans, 20% towards investing for your future, and 10% to building up a cash savings reserve.

Consider the following scenarios for some guidance about smart ways to use your extra cash:

Do you have debt with interest rates higher than 5%? Or does having debt just mentally weigh you down? Prioritize paying down debt.

If your debt has a high interest rate (>5%), concentrate on debt repayment. You’re guaranteed to get at least a 5% return on your money.

Not only that, when you pay off debt you’ll permanently reduce your monthly obligations.

If your debt has a low-interest rate (<5%), it’s highly likely you’ll have more money in the long run if you invest instead of paying down debt.

However, if you’d really like to just get rid of those payments, you’ll still win by paying down debt.

Do you have enough savings to weather unemployment or a big, unexpected expense? Prioritize saving to build an emergency fund.

You already have one month’s salary (or at least $1,000) in savings. However, in the face of unemployment or a large medical expense, that money will disappear quickly.

Build up an emergency fund to make sure you can handle these unfortunate events without relying on credit cards or resorting to pulling from retirement accounts.

Is there a big purchase or short term investment you want to make in your future? Prioritize saving to make sure you aren’t in a cash crunch.

It’s expensive to replace a car, pay for a wedding, buy your first home, or have a child. If you expect these expenses soon, start putting away a little in savings so you’ll be prepared when the time comes.

Are you paying a ton in taxes because of your high income? Or do you just have extra money to put towards your financial future? Allocate the funds to investments.

Investing is a great way to allocate your extra cash. If you have a high salary and a high tax rate, stashing the extra in pre-tax investment accounts is a great way to make the most of your money.

And by starting early for retirement, you’ll be able to invest less over time (if you stick with it and stay consistent) and still end up with more in the end than if you had waited to invest.

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Wrenne Financial Planning LLC (“WFP”) is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.