$ Prioritization
Personal Finance = many moving parts.
Rule #1 - Keep it Simple
Rule #2 - Always have a list of priorities for where your hard-earned $ should go.
- Emergency Fund: 3-6 Months of Living Expenses
- 401k to maximize employer match: Maximize your free money
- High Interest Debt: Credit Card loans, Car Loans, Grad Plus Loans etc.
- Roth IRA: up to $6,000 / yr (2019 Rule) - you pay tax now so your investments grow tax free
- Low interest loans: most regular student loans are a good example. etc
- Finish maxing 401k/Roth 401k - up to $19k / yr annually (2019 Rule)
- Other individual investments
An important note: Be sure to keep in mind your financial situation. Be sure not to tie up all your cash in retirement - level investments if you may need that cash sooner. Pulling cash out of retirement accounts WILL result in massive penalties.
Quick Example
Let's say that my Silver 1999 Saturn Lawnmower-turned-into-a-car only has one brake pad that works and a small family of cute yet feisty raccoons living in the trunk.
Because of the less than optimal situation, I will be buying a new car in the next year.. maybe in the next week if the coons prevail sooner than anticipated.
If all my cash is tied up in my 401k and Roth IRA, then I'll be forced to spend my emergency fund money on a down payment.. or pull $ out of retirement accounts at exorbitant fee rates.
A priority for me that I would place at 4.5 in your numerated list:
ReplyDeletePut $$ in your HSA (Health Savings Account) if your employer offers one.
My IRS limit for this fund is $3500/year.
This money goes in to the HSA Tax Free and can be used for qualified medical expenses (LASIK, Doctor Copay, Physical Therapy, trashcan jousting stitches).
This money never "expires" like a FSA, it is always yours.
It can be invested on the stock market.
If you ever want it back to pay for anything non-medical, then cool, just pay income tax on it and go buy a car.
This is how I'm getting a ~30% discount on eye surgery.