I have followed you on twitter for quite some time, I see you on Fox59 every so often, and I pay attention to what you tweet about on a regular basis. I am at a point in my life where I am looking for the right direction to head in my financial future and was hoping to pick your brain.
-30 years old
-no kids, have a gf of 1.5 years
-Sales occupation (Base salary of $45,000. Last year grossed $70k) 3.5 years in this job
-Savings account -$70k
-Currently rent and live with gf
-Debt ($6k car, $12k student loan)
-401k with work and I put in 6% of paycheck and company contributes 4% so 10% total is how I look at it.
-no other investments
I am at a point where I am wanting to purchase a house but doing that alone is a scary thought. I think I would much rather do that with a fiancé/wife. Not engaged at this point but could be a very good possibility in the near future. I am also a bit nervous about putting my savings in the Market. Hence the $70k in my savings that I have never done anything with ( I have saved $40k in the past 2 years). I think, what if my job situation changes? What I keep in mind and why I haven’t done anything with my savings is because I still have to purchase a house (will I put down 20%, probably not), engagement ring, wedding/etc are all things that I see in my future without depleting my savings to nothing.
Also do you suggest paying off the car and student loan since I can afford it? Both loans are pretty low on interest rate.
Thanks for your question. It presents an interesting issue, one that’s relatively modern; cohabitation and your finances. I’m going to be honest with you, well not just you Adam but everyone out there, combining finances with someone you aren’t married to is a bad idea. I know you love your partner, but if there is a break up in the future, it will be a million times messier if you are financially enmeshed. For this reason, you should not buy a house with your girlfriend. Actually,… do not take on debt with anyone you are not married to ever. The end.
Okay, not the end, but I wanted the sentence to be dramatic. Adam, you are a great saver! But I’d step back from saving for a bit to work on paying off your debts. Use your current income to aggressively pay off your student and auto loans. What this will do is free up your monthly cash flow, which will be really helpful in the future when you are a homeowner.
You might be thinking, why wouldn’t you recommend using the $70,000 to quickly and easily pay off the $18,000 of debt? The answer is a little complex. I don’t ever recommend paying off debt with assets because it is just shifting things on the balance sheet. I’d much rather you harness your income to pay off your debt. The only good thing about debt is it’s ability to help you learn financial discipline. The sacrifice and cost cutting that comes with paying off debt is a great way to develop the habit of living off of less. When your debts are paid off you will be used to living on less which essentially breaks your dependence on your income.
Here’s my advice for Adam broken down:
2) Use your income to pay off your debt aggressively.
3) You shouldn’t buy a house with your girlfriend until you are married.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.