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What should I do with the extra income I will be earning from a promotion?

I am 26 years old, married, and have three kids. I was recently promoted. I will now have an extra $300-$400 in income and I'm not sure what I should do with it. I have about three months of expenses saved as an emergency fund. Should I invest my extra income or put it in a savings account? I'm new to investing and not sure what I should do with a little extra income.

Banking, Investing
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December 2018

It sounds like you have the basics covered with your emergency fund. And the fact that you have extra money indicates your budget is well under control. I can see two scenarios with the extra funds.

First, you haven't indicated if you have any debt. But if you have credit cards, you should allocate the extra income to get those paid off. If you have student loan debt, you might want to do a 50-50 split between your student loans and investing.

The second scenario is investing. Since you don't know much about investing, it will be best if you work with a service that will manage your money for you. There are automated investment platforms, call robo-advisors, that can design and manage a small portfolio for you. Examples are Betterment and Wealthfront.

Since you want to retain the ability to access the funds, I'd set up the account as a Roth IRA. Under that program, you'll have the benefit of tax-deferred (and ultimately tax-free) investment income. But since your contributions are not tax-deductible, you can withdraw them at any time without having to pay tax or an early withdrawal penalty.

The combination of a Roth IRA held with a robo-advisor will give you investment management, with the ability to access your money if need be. It's an excellent combination for a person with your personal profile.

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