Now that I finally have a little income I need to figure out what to do with it. There are several things I would like to do with my money but I can’t do them all at once. The things I would like to do are:
- pay off my credit card (approx. $1600 balance)
- establish $1000 emergency fund
- open a Roth IRA
- get health insurance
Getting health insurance should probably be my first priority, after that it is less clear. My credit card is at 0% interest but that will end in August. The interest rate will then be 11.74%. I know it would be smarter financially to pay off the card then keep $1000 in a savings account earning 5% but I like the idea of having a little cushion in the bank. I’ve already delayed opening a Roth IRA for too long. I am almost 40 and have no retirement savings. That is why I want to get the IRA started soon. So far I haven’t done anything because I can’t make up my mind. Do you have any suggestions?
Although it probably doesn’t make sense earnings-wise, I’d probably go with building up an emergency fund and opting for health insurance before the others. It’s always nice to have a little extra money in the bank should something unexpected come up.
The order I’d recommend is health, emergency fund, credit card, Roth IRA. You don’t want a medical accident to bring you back $10K in debt. The emergency fund would be next because you never know what may happen in the future (and it’s so much more peace of mind to take care of an emergency with cash vs. credit). Then I would say the credit card so you don’t get hit with interest charges. Last of course would be the IRA.
Savings! Open an IRA and dump the max in there per year. Retirement will be here before you now it.