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Aug 20 2012 12:00AM



I am starting a new job next month and will make three times as much as I am now. My wife and I have car and student loans. I’ll make enough to cover for bills and have a considerable amount remaining. I have no savings or retirement accounts. Should I begin saving for retirement or aggressively pay off my loans? 


As a general rule, I like to be debt free.  Some may make the mathematical argument that if you can earn more on your investments than it is costing to service debt, you should focus on investing. However, if you get into the lifetime habit of limiting debt and living within your means, you will be more successful in the long-run. The only caveat would be contributions to company pension plans and IRAs. You and your wife, if she is working, should consider making contributions to company pension plans up to matching contributions. After that, you should make maximum contributions to IRAs. If you are under age 50, you and your wife can each contribute up to $5,000 to your IRAs. There are deductibility rules for Traditional IRAs so you will want to make sure you can deduct your contributions before deciding to use a Traditional IRA or Roth IRA. After you are debt free, build up an emergency fund equal to six months worth of expenses.  After that, return to your company pension plan and save aggressively for retirement.  If you are young and without children, you will find it easier to save now than later. Take advantage of the opportunity.

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