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What now?

Question: I am notoriously bad with my finances, and for basically the past five years since I graduated college, I have ignored them. Of course that never works out well. I found myself in about $4000 of credit card debt on top of my student loan of $22,000 which I had deferred for as long as I was able to. About a couple of years ago, it all caught up with me and I enrolled in a debt management plan, consolidated my student loan, and have been making paying both regularly each month.

Now I have paid most of my credit card debt with less than $1000 left to go, and I have stopped the debt management program because I realized that I was simply paying them to write one check a month. I have a 401K plan with a couple of thousand and a couple of hundred in cash savings. I also listen to your show to try and understand my relationship with money.

Finally here's my question: I am young and live on my own in New York. Where should my next financial goals be placed? My expenses are still pretty high but luckily manageable. How do I keep moving forward financially? Thanks, Amelia, Brooklyn, NY

Answer: Congratulations for seizing control of your finances and paying down the credit card debt. That's terrific. I'm always distressed when I hear about debt management programs that essentially take money from people who can't afford it.

How you should move forward financially is a big question, and the answer will evolve over time. But here are some thoughts. I'd continue with whatever system you devised to pay down your credit card debt, but use it to build up savings from this point on.

I want to share this email I got the other day (in a different context). It's from John. He's 69 years old and lives in Ham Lake, Minnesota.

... Some advice I was given when I was 20 years old in 1959 was to save something out of every pay check, having it invested before I ever saw it. AKA, Stock purchase for one company, savings bonds with another and the 401K the last 20 or so years. It has put our children through college, help up purchase a home and gives us retirement income without losing the funds necessary to keep the $$ coming....

You want to save for retirement, which you're already doing. Keep building up that nest egg. By the way, are you putting away the maximum?

We live in a harsh economy. I would also focus on building up your "emergency" savings. This will give you a cushion in case you lose your job. It will also give you the freedom to take a risk and try another employer, to buy a home, or to seize some other investment opportunity that might present itself.

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