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A friend of mine asked what to do with money this year. He's generally good but has yet to educate himself about investing. He said he wants to buy a home and also start funding a Roth IRA (because someone told him it was a good idea--but he doesn't know how).
After a long discussion, I learned about his money situation and it seems fine overall. He's employed in public education and makes 55k/year, rents an apartment which is split with a roommate, no credit card debt, he saves money every month, has a pension but no other retirement funds. He just turned 30.
He's got $20k cash in the bank.
He says $7500 is an adequate 6+ month emergency fund --if he didn't have debt.
His outstanding debt is:
Vehicle loan: $3000 left at 3.24% on a 5 year old car with 50k miles.
Student loan: $1500 left at 4.5%
Student loan: $8000 left at 6.6%
The sum of monthly payments for all those debts is $750/month.
So I said forget about houses and IRA's. Pay off the debt. We discussed housing affordability and good rules of thumb when buying and I think I convinced him he's probably a ways off still from buying a home. He was reluctant to let go of that idea, and I said it would never be a good idea to try to buy a home with student loan debt on his books anyhow.
I asked what he'd do with an extra $750/month. Open an IRA he said. And put the rest in savings to extend his EF, part of which could become a downpayment someday.
So we left it at that.
Next day he called to tell me he paid everything off. Navient is sending him paperwork on the student loans, and the vehicle title is being released and dropped in the mail.
I congratulated him.
I also didn't think he'd take my advice seriously--because he really wants to buy a place. (thanks SA for the education...lol)
I don't think I steered him wrong, but I also have never had someone take my advice, wholesale, as he did. Should I have told him anything differently?
After a long discussion, I learned about his money situation and it seems fine overall. He's employed in public education and makes 55k/year, rents an apartment which is split with a roommate, no credit card debt, he saves money every month, has a pension but no other retirement funds. He just turned 30.
He's got $20k cash in the bank.
He says $7500 is an adequate 6+ month emergency fund --if he didn't have debt.
His outstanding debt is:
Vehicle loan: $3000 left at 3.24% on a 5 year old car with 50k miles.
Student loan: $1500 left at 4.5%
Student loan: $8000 left at 6.6%
The sum of monthly payments for all those debts is $750/month.
So I said forget about houses and IRA's. Pay off the debt. We discussed housing affordability and good rules of thumb when buying and I think I convinced him he's probably a ways off still from buying a home. He was reluctant to let go of that idea, and I said it would never be a good idea to try to buy a home with student loan debt on his books anyhow.
I asked what he'd do with an extra $750/month. Open an IRA he said. And put the rest in savings to extend his EF, part of which could become a downpayment someday.
So we left it at that.
Next day he called to tell me he paid everything off. Navient is sending him paperwork on the student loans, and the vehicle title is being released and dropped in the mail.
I congratulated him.
I also didn't think he'd take my advice seriously--because he really wants to buy a place. (thanks SA for the education...lol)
I don't think I steered him wrong, but I also have never had someone take my advice, wholesale, as he did. Should I have told him anything differently?
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