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Got a raise. Now what?

Question: I'm thirty-seven. My home is paid off but needs repairs. My cars are old but paid for. I recently changed jobs and will be making about $25,000 a year (nearly $8,000 more a year than my old job). My sons (single parent) are sixteen and seventeen.

Making more money, should I focus on saving or fixing my house and a new car in preparation for a time when health and limited income will make it hard to do? Paying for college is off the table; they know that. I have about a thousand dollars in credit card debt that I plan to pay off. I plan to have nearly eighty dollars a week or three hundred dollars a month toward these goals. I live off so little, I want this extra to really count. First Name: Charlie, Columbus, GA 

Answer: Congratulations on your new job. I admire your goal of saving more. You live on so little that it can't be easy. Yes, get rid of the credit card debt. I would also focus on saving money in a savings account, an online savings account, certificates of deposit and similar safe investments. (I’m assuming the home repairs can wait without structural damage to your home.)

The advantage of emphasizing savings is that it will give you some financial flexibility when you need a car repair or another car. The same goes with the home repairs. You're still young. I think this two-fold approach—eliminate credit card debt and save more—will make the extra income count when its time to spend some later on.  

I'd like to make a quick point about your sons and college. They should get a lot of financial aid to attend college. There are many flaws with our higher education financial aid system, but it does well by young adults like your sons. The Expected Family Contribution (EFC) for college should be zero or at most a small amount. Your home isn’t considered in figuring out the EFC in most cases, either. The real key for your sons to attend college is to make sure they’re academically prepared.  

About the author

Chris Farrell is the economics editor of Marketplace Money.
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