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Financial Checkup: How Should Erik Balance Savings Goals with $110k of Student Loans?

Prioritizing your financial goals in your 20s is tough. There are a lot of competing goals when you are just starting out. Down payment for a house, a wedding, student loans, emergency fund savings, and retirement are all demanding your money. What do you do first? Here’s our advice to Erik!

How Should Erik Balance Savings Goals with $110k of Student LoansOccasionally I answer reader questions and give them a public financial checkup. The lucky reader gets free advice; you get a peek at somebody else’s money. If you want to be considered for a future checkup and are willing to share your finances with me, learn more here.

Today’s checkup is for Erik, a 24 year-old corporate trainer from Phoenix, AZ who is hoping to balance repaying over $100k of student loan debt with saving for emergencies, his wedding, and—hopefully—a house.

Here’s Erik’s situation in his own words:

My fiance and I are going to get married in the fall of 2012. Combined, we have $110,000 in student loan debt [and] our gross annual income is about $75,000…We’re saving for the wedding and are also trying to save for a house, but do not have enough money for both… We are also conscious of retirement, and I contribute 6% to my 401(k) and have approximately $2,500 in that. I read a lot about finances, but I am just not sure if I am doing everything right.

Our short term goals are to save up for the wedding and also start saving enough so that we can put a down payment on a house within three years. (We anticipate needing $20,000 for the wedding. We have $5,000 saved for it so far.) Longer term, we’d like to reduce the student loan debt considerably in five years, and make smaller monthly payments. I want to be putting more into our retirement as well, with a goal of approximately $50k combined in retirement at the age of 30.


Here’s a breakdown of Erik’s income, expenses, assets, and debts: 

Erik Income Expenses

Erik’s Net Worth

Erik Net Worth


  • Free rent is a benefit of Erik’s fiancee’s job, although they don’t expect that job to last for more than three years.
  • Erik’s monthly car payment is $138, but he’s opted to pay down the loan faster at a rate of $110 every two weeks.
  • Not included in the above picture is Erik’s $240 monthly pre-tax 401(k) contribution.


Erik and his fiancee have a lot of education debt for their income. (A crude rule of thumb I use is that you don’t want to owe more in non-mortgage debt than you earn annually before taxes.) Erik mentioned in the emails we traded that he’s exploring a second income stream that could bring in up to $15,000 a year, which I think is a great move. He also recently earned an MBA and his current job doesn’t reflect that yet. As tough as the market is, I would make it a priority to begin searching for a higher-paying job for which the new degree qualifies him for. The best time to look for a job is when you already have a good job.

Erik also noted his fiancees income isn’t totally secure, which to me means that they should probably focus on saving cash before repaying debt. This also means they should definitely hold off on buying a home until he knows that he and the future Mrs. can earn at a consistent level for the foreseeable future.

On the upside, Erik and his fiancee have a safety net in their emergency savings. Also, they live rent- and utility-free. This allows them to deal with their $1,200 student loan payments, other expenses, and have enough left over to save every month.

What I don’t like about Erik’s situation is that it’s precarious. If they lose an income, the free housing, or both, they may not be able to cover both their debt payments and minimum monthly expenses.

1. Earn More Money: For the above reason, I think Erik’s doing the right thing in looking to earn more. I also think that saving cash should be a priority over paying down debt. If he can save $1,000 a month, I would continue to do so until they get married, and even a little bit beyond. Erik says his monthly expenses are about $3,100, meaning he needs $18,000 in savings to cover six months’ expenses. Although they have that now, they’re designating some of their wedding and, at their current rate of savings, they won’t be able to cover their $20,000 wedding and have a six-month emergency fund leftover.

2. Reevaluate Savings Priorities: Trimming the wedding budget is an idea, but at the very least, I would have six months of expenses saved in cash even after they pay for the wedding. Then, it’s time to look at debt, upping the retirement contributions, and, when all else is in order, a house.

3. Pay Off Some Debt: After the wedding, I would pay off some debt by funneling extra cash to the car loan and high interest student loan. Although one student loan has a higher interest rate, the car loan has a higher monthly payment that you’re responsible for. Plus, it’s always better to have a lien-free car if, for no other reason, it’s easier to sell if needed. Personally, I would then pay off the 8.75% student loan before starting to think about a home. (The reality is that it probably makes sense to rent until they earn a bit more and/or have reduced a bit of debt.)

4. Up Retirement Savings and Then Save for a House: After repaying those two debts, I recommend Erik up his retirement savings to 15% of gross income, Then, he can start saving money to put 20% down on a house. With that amount saved, no consumer debt, and regular 15% retirement contributions, Erik will be in as good a position as possible to buy a home.


Here’s how I think Erik’s situation stacks up, right now.

Erik Money Report Card

Despite Erik’s large education loans, he’s headed in the right direction…especially for being 24. He and his fiancee are smart to have taken advantage of free housing, but as life’s big expenses (a wedding and a home) creep closer, they’re going to have to hustle to stay ahead. That means:

  • Ensuring they still have enough emergency cash on hand after the wedding.
  • When possible, paying off the car loan and highest interest student loan.
  • Increasing their income.
  • Increasing retirement contributions when possible.

What do you think? What advice would you give Erik and his fiancee? Share your thoughts in a comment.


Published or updated on August 12, 2011

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Amy says:

    This question is more for David. I know when you first put the idea to do these reviews out there I was pretty excited about getting a read on my situation, that is until there was the stipulation that you needed to submit a picture. I don’t see a picture on Erik’s review though. Is that no longer a requirement?

    • Colin says:


      If you go back to the original article (or click the link in this article), David mentioned in the comments that he decided to drop the photo requirement based on the responses.

  2. Since they only rent (albeit rent free) and they don’t seem to be asset heavy, I dont know that they necessarily need to build up emergency savings at the moment. Especially since the 5K in wedding savings could be tapped if they were really distressed. They should focus on putting down more money on debt, obviously the ones with higher interest first. I would make sure they don’t accelerate their student loan payments to the point where they lessen the tax benefit they receive from the interest deduction, since they are in the income bracket now and may not be later. I havent been able to deduct my loan interest in quite a few years.

  3. My off-the-bat suggestions would be have a cheaper wedding and to pay off at least 50% and preferably 100% of that student loan debt before buying a house. As a home owner, I can vouch for the fact that having any additional debt would be way more stressful on top of home maintenance costs and taxes. My husband and I had a fantastic wedding for $3000 or less…it may not be possible, but I bet you won’t notice the difference between a $20,000 wedding or a $10,000 wedding after the fact. I pretty much agree with the report card.

  4. Tommy says:

    Erik, thanks for sharing. I think you’re doing fairly well to be as young as you are. I’m 28 and in a similar boat in some ways. My recommendations would be to try to trim down on the wedding wherever possible. (Congrats, by the way!)

    Also, does your employer do any kind of match to your 401(k)? If so, I would only contribute to that up to the match point. I think that both you and your fiancee should start Roth IRAs, almost before you do anything else. It’s after-tax money that you can save for your retirement (up to $5,000 each for the calendar year), and you can withdraw in the future without penalty to fund the purchase of your first house. That’s sort of like killing two birds with one stone in this case.

    I’d also recommend renting (after the rent-free gig is up) until you have at least a 20% down payment on the new house. Keep in mind that you may want to paint, buy new furniture, etc., on top of property taxes, possible repairs, and maintenance (like plumbing stuff and mowing the yard, if applicable).

    Try not to get that urge to settle down and play house just yet. There’s plenty of time for that. Good luck!

    • Colin says:

      Tommy, as an FYI, early distributions from a Roth IRA for a 1st time house purchase is limited to $10,000 (presumably per person, so $20,000 for the two of them). In my opinion, based on their age, that $10,000 would be better off staying in the Roth.

      Also, based on the data, I’m not sure they can afford to fund a Roth IRA currently either (though I do agree that they should, if possible). It sounds like they’re just getting by with their current income (and based on the stated 6% he’s contributing to an IRA, he’s likely only contributing up to the employer match, but that’s my presumption).

      I’d start trimming that $1,900 monthly “other expenses” to be honest. What’s making up such a large $1,900 “other expense” amount?

      I realize they each have their own car but I drive a mid-sized SUV that doesn’t get great mileage but I probably only spend $250-300/month on fuel. Perhaps they can take 1 car to work and leave the other at home?

      Maybe they can make cuts to their cell/cable/internet bills by scaling back on some bells & whistles…that and eating out if they’re doing that…or maybe cutting back on booze if they’re going out for drinks often.

      Maybe it’s just me, but again, that $1900/month for “other” seems pretty high…that or I am astoundingly cheap, or both. I just have a feeling that with their free (perhaps only temporary) rent status, they’re spending money on other things that would have otherwise gone towards rent. I think a few hundred bucks per month can be saved here.

  5. Amber says:

    Have you thought of attempting the Debt Snowball? Focus on the highest interest rate debt and eliminate it. As the theory goes, your momentum from getting rid of Student Loan C will propel you into elminating the next debt (auto loan) and so on. I don’t agree that you need to wipe out every single student loan before you can think about purchasing a home, but in your case you have such a huge amount of SL debt that I would at least eliminate all the loans that have an interest rate higher than the mortgage you will be taking on. Also, as David mentioned, your situation is not really fixed yet. If one of you gets a higher paying job in a different city, the last thing you want to deal with is the mortgage on a house you can’t live in, so I would really put that idea on hold for a while.

    Your next task is to start convincing your fiancee now that it is completely insane to spend $20K on your Special Day when you are starting your married life so far in debt already. You both can be creative. The average US wedding costs around $27K – be better than average! Aim for no more than $10K.

  6. Chase says:

    I would recommend 3 things:
    1) Take $12,500 of the $20k and payoff the Student Loan C and the Car Loan.
    2) Find a second source (or a bigger one source) of income. Deliver pizzas, work at a bookstore, whatever. You could also look at selling some stuff. Depending on the value of your vehicles, you might consider downsizing/downgrading.
    3) You could also reduce your “Other Expenses”. I’m not sure what $1900/month is outside of mortgage, utilities and car payments. You might try to scale back on that by about $500-$1000. Cut back your eating out, movies (Blockbuster Express is only $1), coffee, etc. Drink water rather than soda. Consider using bunny ears and Hulu for a while rather than paying for cable.

  7. ryan says:

    I would cut the wedding budget and only contribute the company match towards retirement. Save small amount every week/month for emergency fund. Rent for at least 2 more years. Put as much as you can towards car loan and then student loans. Come back in year and a half and let us know how you’re doing.

  8. Brian says:

    Thanks for sharing. I imagine it is hard to “bear it all” to the public.

    That being said, I’d certainly work on paying down the debt, making sure your fiance’s employment is stable, and increasing your income before considering purchasing a house.

    I know you probably don’t want to hear this, but I would also strongly recommend cutting back the wedding budget. Spending $20,000 on a wedding when you are already $100K plus in debt doesn’t sound like a great idea to me. If you could cut that down to $15K or $10K, you’d have another $5k or $10k to pay towards your debt.

  9. Emily says:

    I agree with Dave Ramsey – a house on top of debt is asking for it. I would get rid of all debt before even thinking of purchasing a home.

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