Emailer asks where she should put her extra money

Written by
Peter Dunn
I'm in my mid-twenties and have been working hard to try and get a good financial life foundation built up for myself. Recently, I've started doing some contract work on the side as a data analyst. Each job ranges from $500 to $800 paid to me at one time upon delivery of results. I want to know where you all think is the best place to put this extra money. A big game-changer is that I just bought a used car last week - my first vehicle EVER - so I can pay it off before going to grad school and living off of a stipend.
So here's where things are going now:
Retirement: 15% of gross income (max my employer will match)
Monthly take home pay of $1565
Savings: $100 into savings each month. I already have a $1,000 emergency fund.
Rent: $325 per month (includes utilities and phone)
Student Loans: $363.13 a month. This is the minimum payment. In total, I own $23,991 in student loans. I graduated in May 2013 with $27,000. Average interest for my loans is 6.8% The interest on a bit more than half will freeze while I'm in grad school.
Momentum money toward loans: I have been putting $86.87 extra toward my smallest student loan for the past year, but had to reallocate that money for car stuff.
Credit cards: No debt. Got a Target and Best Buy card. I pay them off online at the end of each week. I got the best buy to purchase a laptop a few years ago and buy small things on it. I use the Target card for the 5% off all purchases.
Car Loan: $504. I took out a loan for $11,695 at a 24 month term, 1.9% APR (I totally kick butt when it comes to my credit score). My goal was to buy a car that would live through grad school, so I got the best thing I could find under $13,000. I went over to purchase a warranty that will protect the car all the way through grad school. I made a $3,000 down payment and the rest is in the loan. Yay for no car payment in grad school (will start August 2017). I also carpool and bike for work, so it's seriously just a weekend car; I'm not sure what I should be budgeting for gas since I'm not sure how much I'll need to drive it.
Car Insurance: $82.83
Discretionary Income: $191.04 - this includes my $100 contribution for groceries and $40 a month for entertainment.
So...the extra money ($500-$800) - where should I put it? Before I got the car, the answer was simple: momentum money toward my smallest student loan. But now I don't know if I should put it toward my car payment. Advice please! Also, please call me out on any other way you could see me organizing things better based on the information I gave above.
Thank you so so much!

Thanks for your email, S.

Before we get going, it's only fair to tell you that you should have my job. You have done an excellent job thinking through your financial life. Have you made mistakes? Probably. We all have. But it doesn't appear as though your mistakes have clouded the bigger picture.

Your decisions make me think of interval training. You know, like fitness stuff. I'm more or less an expert on exercise, primarily because I can do nearly two pull-ups. Because you know grad school starts here in a couple of years, you will behave one way until grad school, a different way in grad school, and a whole other way after grad school. You are living your financial life in little intervals.

The challenge is to make sure one interval doesn't make the next interval too difficult. In other words, you must avoid short-sightedness. All decisions must be measured against this idea. Will _______ affect my ability to thrive in the next interval of my financial life? If the decision were to make the next stage markedly higher, don't do it. If the decision were to enhance the next stage, go for it.

This is all a long way to say pay off your car very very quickly. I don't care too much about interest rates, but I do like the idea that you could reduce your need for income by over $500, in paying off your car. You should also try and build back up your emergency fund as high as possible, prior to school.

Congrats in advance on your badass decisions. Thinking like yours will lead you to a lifetime a financial contentment.

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