[USER]

I’m about to increase my salary by $40k (putting me over $200k annually) and unsure of how I should allocate it.

My house is currently 41% of my net (selling it is not an option) and my car debt is minor, I have approx $16k on credit cards (currently snowballing), student loans of $20k, and a 401k loan.

I’m slowly rebuilding my emergency fund, but no other savings beyond my employer match in my 401k.

I’m 43 and have been telling myself that I’ll be retired by 50, but it’s not looking so hot.

[John]

How much is your 401k loan? Also curious about how you got into debt with such a high paying job.

[Marty]

50 will be a challenge. I would tackle that 401k loan right away

[Suzanne]

$500 in emergency fund first, then pay off credit cards. Car loan next, unless it’s a crazy low interest rate.

And the 401k loan has likely prevented you from fully benefiting from the recent bull market.

Retiring at 50 would be challenging, but 55 is doable. Pay off ALL debt (unless the % is lower than CD rates).

Cut back on unnecessary spending and start maxing out your 401k ($23k per year).

If your employer allows it, do after tax contributions as well, and an immediate in-plan Roth conversion (which brings your contribution limit to $69k).

If you retire from your employer at age 55, you can use the IRS rule of 55 to withdraw funds penalty free.

This strategy will not only be tax efficient, but will give you a pool if Roth dollars and non-Roth dollars to pull from.

If you get health insurance through the ACA, that gives you the ability to control what your AGI is.

But if you have debt and have been making $160k up until this salary increase, you need to look at your monthly spending.

How often are you eating out or getting DoorDash? How much are you spending on clothes & shopping trips?

Are you taking lavish vacations when there are places within driving distance you haven’t visited yet?

How fancy is your car (and did you get it new or pre-owned)?

A big key to FIRE is finding the activities that bring you joy and don’t break the bank, allowing you to save more.

If you love both golf and hiking…

lean into the hiking hobby (golf is expensive).

If you’re a foodie, get together with friends to cook a new recipe vs meeting them at a $$ restaurant.

If you enjoy fishing, challenge yourself to find the best fishing spots yourself vs hiring a guide.

FIRE is a mindset and a lifestyle.

You’re heading in the right direction snowballing your debt, but if you really want to retire in your 50’s, the salary increase alone isn’t going to make that happen.

You need to save/invest 100% of that salary increase AND find ways to trim your budget so you can save even more.

[Justin]

Pay your credit card off over the next three paychecks this is silly.
And a 401k loan wow.

[Michael]

There’re many great experts here who can advise you on what to do to get back on track.

The mechanic on how to reach FI is relatively simple.

The behavioral part is the more challenging piece.

Achieving FI is really 80% habits and 20% math.

Whatever you can do consistently on the right direction starting today, your future self will thank you.

[Ja]

I’d allocate equal percentage debt, investing and really focus on building up an emergency savings.

[Shadia]

Definitely pay down that credit card loan asap assuming it’s very high interest, then student, then 401k loan.

Pay down high interest debt before you can begin to save more.

I’d even consider not contributing to 401k until after that credit card debt is fully gone.

You’ll never catch up otherwise.

[Dustin]

You’ll probably net 2500ish a month more. If you’re paying real rates on your credit cards I’d throw all but 500 a month towards them.

In retirement are you going to sell your house?

[Lauren]

Personally I would pay off the 401k loan, up my 401k to the max and then use the rest to pay down your credit card and student loans before doing anything else.

Once the debt is resolved, start saving in a brokerage account.

Unless you have some other income you have not mentioned, I don’t see how retirement at 50 is realistic without major changes… cut spending and start saving aggressively.

If you aren’t already, track your spending to better understand your situation.

[Golden]

Everything goes to paying off credit card debt. Then 401k loan. The extra $40k should keep going towards loans and investments.

Do not increase lifestyle spending, period.

I believe this is what got you to this point…

lifestyle creep.

[Jamie]

I really appreciated what I learned in Financial Peace University. It wouldn’t hurt to check it out.

[Fatima]

It sounds like you need a spending diary. There doesn’t sound, from the information given, like you should have any debt at a 200k salary

[Tony]

Buying the house that made you house poor was mistake #1.
Keeping the house that keeps you house poor is mistake #2.

Trying to grow into a house payment is probably the second biggest financial mistake people make, behind credit card debt.

[Lori]

Get a handle on your expenses. Making $160-200k and you’re in debt? Insanity.

Knock out that debt with the $40k, then use that extra to up your emergency fund.

Hit it hard.

No excuses.

Cut *everything that’s not a need.

Then invest like crazy.

[LeeAnne]

Curious the logic of paying the 401k loan first. Aren’t you essentially paying yourself back with interest?

I’d double down on the consumer debt, so I’m curious why so many say start with the 401k loan?

[Megan]

What is your APR on each debt?
Plug all the debt undebt.it and look at strategic pay off scenarios.

What is your current tracking and budgeting practice?

I am a big fan of YNAB especially when it comes to lifestyle creep.

YNAB also integrates with undebt.it

[Mackenzie]

#1, you desperately need a budget and to cut spending if you want to retire even in 15 years.

Pay off your credit card and car loans immediately. What’s the rate on the student loans?

Depending on that, tackle the 401k and student loan.

After your loan is paid off, STAY AWAY FROM DEBT and live below your means.

Your $40k raise should not increase your lifestyle spending at all if you want to retire.

[Jessica]

I hate to say this but you need some dave ramsey in your life. Aint no way someone making over 150k a year has all this debt if they are spending responsibly.

Unless you had an extremely unfortunate event in which case im sorry.

But it looks like you have the tools to dig yourself out rather quickly if you’d just focus and accept the lifestyle that you can truly afford.

Id do a ms frugalwoods one month no spend challenge.

Do the daily tasks she sets forth which involves taking a deep dive through your financial habits and setting forth realistic goals with a new clarity, and legit dont spend one more dollar that isn’t towards paying off your debt.

No starbucks no avocado toast (coming from a millenial)

[Author]

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