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Ask Money

A single parent and savings

Chris Farrell Mar 30, 2011

Question: I am a student right now. My husband left me with our two small children a year and a half ago, and I had no money and no job. I enrolled at university and moved in with my parents, and I will graduate in two and a half more years with a degree in mechanical engineering. Due to the divorce, I took out about 9k in student loans that first year. I have about $2100 in my IRA.

Now, I am in a slightly better financial position, and I have about 300 per month to put into savings or whatnot. Should I put it into my IRA? Or pay off my (subsidized) loans early? When I graduate, I will be 31, I will have a child in need of braces, and I will need to think about my kids’ college, cars, etc. I’m worried about not having enough time for my retirement account to grow. Mattea, Portland, OR

Answer: I understand the concern about retirement savings, but I think you have some bigger financial priorities right now.

Cash is king in circumstances like yours. I would focus on building up your savings as much as possible while you’re in a slightly better financial position.

Unless you end up with a very stable job after graduation, single parents have a greater need for a healthy savings buffer against expenses (like braces) and unexpected setbacks (such as losing a job).

Savings will also give you choice affer you graduate. For instance, when you get a job the smart thing to do may be to aggressively pay down the student loans. Alternatively, if you land a good job with uncertain prospects you might want to keep the savings in reserve and simply meet the monthly tab on the student loans.

As for your IRA, sure, put some money into it. Let the investments compound. But retirement savings will become a bigger priority in a couple of years when your career is launched and your savings buffer is strong.

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