Ask Terry Questions Need a plan for our income.

Need a plan for our income.

By Terry Savage on October 14, 2019 | Financial Planning / Retirement

My husband and I both work full time. We are in our late 40s. We have one child in college (junior), one going to college next year, and our 3rd child is still in grade school (8th). My husband works in a commission based job, no salary. We are in the midst of a higher earning period. What is the best way to delegate these funds? Do we pay off our debt, parent plus loans, put in our bank savings account, or open a new fund? We both contribute to a 401K, but only have a couple years of retirement covered. We have minimal credit card debt, have 11 more years on our mortgage, and a home equity loan at a low fixed rate. Also, historically, the commissions ebb and flow. A good period has been followed by a slower, leaner year. So I would like to be able to tap into this additional income if needed in the future with minimum or no penalty. Thanks!

Terry Says

You are the “typical” American family!  I can’t imagine how you are going to pay for college for three children!  Have you discussed with each of them the possibility of living at home and attending a community college for the first two years?  Otherwise, you  — and they — are going to be buried in debt for years.  I would advise NOT taking any more PLUS loans.  That’s the most expensive borrowing you can do — not only the rates, but the upfront fees!

OK, now back to your question.  You do need some flexibility.  So just set some of that extra cash aside in a money market deposit account at your bank — or a money market mutual fund at Fidelity, so it is not so easy to transfer it into your checking account with one click!  BUT, if you do have some extra money I would advise paying down that high rate PLUS loan you already have, because the rate is so high– much higher than you are getting in your savings!

How smart of you to be thinking ahead about your earnings, instead of being surprised by the inevitable recession.  Of course, the real –but tough — solution is to figure out how you can each earn more, right now, while the economy is good.  It might not be in your primary business — but lots of businesses are hurting for intelligent, part-time help.  And extra job right now, and a bit more income, could set you up for a better ride when things get tough again.  And they will.

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