November 24, 2022
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I am a 23 year veteran and a federal worker. I earn $ 73,000, with $ 10,000 in savings and a $ 30,000 car loan. How can I improve my finances?

By on November 10, 2021 0


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Dear Quentin,

I am 23 years old. I have about $ 10,000 in my savings. Due to a military accident, I retired and currently receive a pension of $ 2,000 per month for the rest of my life.

I just started working for the federal government last month, earning $ 73,000 a year. I contribute 5% to my savings plan, and the government matches that.

I don’t own a house and the only debt I have is a $ 30,000 car loan. My credit score is 650. I don’t have a spouse. I have a 3 year old daughter.

What can I do better to save more and become more financially stable?

Twenty-year-old father

Dear twenty years old,

Your car loan is almost half of your salary, so start with that. The sooner you lower your income-to-debt ratio, the sooner you will be able to save and, hopefully, at some point in the not-so-distant future, buy a home. Do everything you can to pay off your loan and / or switch to a cheaper vehicle.

A Roth IRA is a good idea for someone like you who is in a low tax bracket, but expects to move into a higher tax bracket in the future. The reason is that with a Roth IRA, you make deposits with after-tax dollars and therefore withdraw the money tax-free when you reach retirement age.

The sooner you start with a 529 plan for your child’s education, the better. You can withdraw money from a 529 account without paying federal and state income tax on that amount in most states, as long as the money is used for qualified higher education expenses. such as tuition, books and laptops.

Like the 401 (k) accounts, 529 accounts are defined contribution plans linked to market performance. How the money is invested depends on your risk tolerance and the number of years before college. Your money can accumulate faster because you don’t pay tax on investment income or capital gains.

To get your foot on the property ladder, consider a VA loan on a small house. You will first need to obtain a Certificate of Eligibility before applying for a mortgage, and you will need to submit a DD 214 form that shows your service history. You can read more here about affordability considerations to keep in mind for a VA loan.

A FICO credit score of 650 is considered “fair” and you will need to work at it. It’s imperative that you continue to pay off your car loan and your credit card – if you have one – on time every month. Try not to spend more than 30% of your credit card limit and pay it off in full each month. It’s a myth that carrying a small balance helps your cause.

You’re missing an emergency fund – usually six months of spending – so set some money aside for that each month and figure out what you can do to reduce your spending. If you have a two-bedroom apartment, for example, you might want to consider a roommate, even for short-term rental.

Maximize your savings plan, if you can, and keep doing what you’re doing. Thank you for your service.


You can email The Moneyist with all financial and ethical questions related to the coronavirus at [email protected], and follow Quentin Fottrell on Twitter.

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The Monetary regrets not being able to answer the questions individually.

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