A DailyWorth member recently asked us:
For the first time in years, I've paid my bills, paid off my credit card, and have a $2,000 cash surplus! I have an $80,000 HELOC (Home Equity Line of Credit), and I'd really like to fund my Roth IRA. Should I put all $2,000 into my HELOC, or distribute it across both the HELOC and my Roth IRA?
DailyWorth contributor and personal finance expert Galia Gichon offers the following:
I've always been a big fan of moderation. I think it's okay, for example, to have a few glasses of wine a week or a small piece of chocolate every night. The same principle applies to your money. Before we begin allocating that $2,000, answer one question: Do you have an emergency savings account of at least six months worth of expenses? If not, here's what I recommend:
- $1,000 in your savings account. What if you lose your job? The more you have in reserve, the better you'll sleep at night.
- $500 towards paying off your HELOC. Interest rates are very low right now but inflation will catch up with us and start raising rates fairly soon. That includes your HELOC, which is most likely not fixed.
- $450 towards your Roth IRA.
- $50 toward something fun in the stores. You deserve a treat, and we do need to stimulate our economy!
The dollar amounts don’t matter so much. The idea is that you can meet many of your goals with one chunk of change.