Rank these financial priorities - debt, savings, etc. | TigerDroppings.com

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HurricaneDunc
Bowling Green Fan
Houston
Member since Nov 2008
9308 posts

Rank these financial priorities - debt, savings, etc.


How would the money board rank these priorities? Obviously there's a million factors that go into this, so feel free to make broad based assumptions. For example, I'm assuming there's a company match in a 401k to consider. Overall I've tried to include all basic areas of financial concern for younger/mid career type people, but I'm sure I missed some so feel free to add anything.

The point is to see if there's some general consensus on where one's priorities should lie.

A - Credit and other consumer debt including car loans
B - Student Loans
C - Emergency fund/savings
D - Retirement savings (up to company match)
E - Retirement savings (beyond company match)
F - Education savings for children's college
G - Mortgage

My proposal would be:
1. D
2. A
3. C
4. E & F
6. B
7. G

The high level thought process here is beginning to save for retirement (and not give up free money), then paying off shorter term consumer debt, building savings to eliminate need for short term debt, then working towards longer term savings goals. Longer term debt such as a mortgage and student loan I'm OK with assuming the interest rates are relatively low (<6%).



This post was edited on 1/6 at 9:20 am



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Lookin4Par
Colorado State Fan
Boulder, CO
Member since Jun 2012
862 posts

re: Rank these financial priorities - debt, savings, etc.


A - Credit and other consumer debt including car loans
B - Student Loans
C - Emergency fund/savings
D - Retirement savings (up to company match)
E - Retirement savings (beyond company match)
F - Education savings for children's college
G - Mortgage

1. C - emergency savings
2. D- retirement with match
3. A- credit
4. E- retirement beyond match
5. F- Education savings for children's college
6. B- student loans
7. G- Mortgage






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rmc
LSU Fan
Zachary, LA
Member since Sep 2004
22497 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

1. C - emergency savings
2. D- retirement with match
3. A- credit
4. E- retirement beyond match
5. F- Education savings for children's college
6. B- student loans
7. G- Mortgage


The only thing I would possibly switch is make 2 and 3, 2A and 2B. I think it depends on the situation.






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Joshjrn
LSU Fan
Baton Rouge
Member since Dec 2008
5725 posts

re: Rank these financial priorities - debt, savings, etc.


On a related note, what is an appropriate emergency fund amount? I've read three months worth of expenses, but I figured I'd get a second opinion.





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Venelar
LSU Fan
The AP
Member since Oct 2010
310 posts

re: Rank these financial priorities - debt, savings, etc.


3-6 months is the answer you'll get most often.







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Lookin4Par
Colorado State Fan
Boulder, CO
Member since Jun 2012
862 posts

re: Rank these financial priorities - debt, savings, etc.


I would say 6 months off the top of my head. You need to take into account how long it would take you to get a comparable job. Add a couple of months to that estimated number.

btw once you achieve a vast majority of your financial goals I would start stacking extra saving/emergency funds in low risk liquid investments, just in case. (I enjoy having extra cash on the sidelines should I need it)







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gatorsimz
Florida Fan
cafe risque
Member since Feb 2009
5346 posts

re: Rank these financial priorities - debt, savings, etc.


1. Emergency savings
2. High interest debt
3. Both Retirement savings
5. Student loans
6. College savings
7. Mortgage

Student loans and mortgage would depend on IR and principal






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Joshjrn
LSU Fan
Baton Rouge
Member since Dec 2008
5725 posts

re: Rank these financial priorities - debt, savings, etc.


26 year old recently graduated/hired attorney in Baton Rouge, not at one of the "big" firms. Renting, car paid for. No credit card debt. 90k in Federally backed student loans (i.e. income based repayment, forbearances, etc. are all emergency options).

Interest rates are mostly 6.9% with a couple of 7.9% loans I intend to pay down ASAP. Basically, I'm trying to ascertain when I should switch my focus from my emergency fund to paying down my higher interest loans.






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Lookin4Par
Colorado State Fan
Boulder, CO
Member since Jun 2012
862 posts

re: Rank these financial priorities - debt, savings, etc.


I am very familiar with the legal market right now so I would push it to at the very least 6 months. 10 months of expenses would be ideal.

Here is your plan of action.

1. save up 6 months of rent/food/gas funds.
2. Start a retirement fund.
3. Double down on the 90k after taking out 200.00 a month towards emergency funds.






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NaturalBeam
LSU Fan
Member since Sep 2007
13067 posts

re: Rank these financial priorities - debt, savings, etc.


Emergency fund should be priority #1, even with near 8% student loans IMO





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LSUtigerME
LSU Fan
Walker, LA
Member since Oct 2012
532 posts

re: Rank these financial priorities - debt, savings, etc.


1 - Company Match - take the free money first. If you get strapped for cash in future (or now) it's still accessible. You could even put it in an after tax 401k and pull it, leaving the match.
2 - Emergency Fund
3 - High Interest Debt
4 - Retirement Savings
5 - Student Loans
6 - Education
7- Mortgage

If education and mortgage are high interest, should refinance/consolidate to lower it.

This post also made me realize I may need to reallocate some of my cash flow.






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29672 posts

re: Rank these financial priorities - debt, savings, etc.


Always rank in terms of ROI.

I would put getting company matching funds at the top, simply because the ROI is usually even better than paying off a credit card.

Then debt retirement in decreasing order of interest rate, down to around 6-8% or so. Keep in mind that although a 6% return is pretty good (especially these days) that is roughly equivalent to a 4.5% return in a tax-advantaged account. So once you have debts in the 6% range or so it's fine to contribute more to those accounts.

I start with a Roth b/c you can always pull the money back out if you need it. Obviously it isn't desirable to, so for small matters that you can pay off quickly you can just charge it on a credit card.

Once you get a mortgage and qualify for a HELOC, do so immediately. Then you have a great emergency fund right there and can plow everything else into your 401 and Roth. If something comes up, write a check against your HELOC, the rates are low enough that you can take your time paying it back.

I honestly don't see the need for a separate emergency fund at all unless you have zero access to credit, in which case that fact alone is a more significant problem.






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saving$
LSU Fan
Member since Nov 2012
34 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

A - Credit and other consumer debt including car loans
B - Student Loans
C - Emergency fund/savings
D - Retirement savings (up to company match)
E - Retirement savings (beyond company match)
F - Education savings for children's college
G - Mortgage


1. C - 6 months of expense is a good starting point
2. B - Nearly impossible to have discharged during Bankruptcy. The sooner you can get rid of these the better; as you do not know what your future holds.
3. A - You'll never reach financial independence paying ridiculous interest rates.
4. D - Are you vested in the plan?
5. E - Depending on your tax bracket a 401K can impact your AGI
6. G - Rule of thumb is to keep mortgage below 2X annual income
7. F

This is IMO and is obviously dependent on tons of different things.






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Danchase
Georgia Fan
Member since Dec 2012
64 posts

re: Rank these financial priorities - debt, savings, etc.


C- small emergency fund
D- free company money usually only around 3%
A- consumer debt. Go after this one hard core live on as little as possible
C- again 6 month emergency fund this time
B- same as C
E- 15% into retirement
G- knock that shite out
F- easy at this point but at the same time as G if necessary
E- again fully funded retirement and you can truly do whatever you want with your money






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Queen
LSU Fan
383 miles from Death Valley
Member since Nov 2009
2757 posts

re: Rank these financial priorities - debt, savings, etc.


I'm with NaturalBeam. And it's what more than one financial planner has told me.

Emergency fund and high-interest debt has to be priority for me. Then retirement/college savings and such. I'm not of the group willing to raid a 401k for an emergency.






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LSUtoOmaha
LSU Fan
Nashville
Member since Apr 2004
21044 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

Emergency fund and high-interest debt has to be priority for me. Then retirement/college savings and such. I'm not of the group willing to raid a 401k for an emergency.



Me too, when forced to choose between setting myself up for now and the future, I will always choose now.

To be more specific, I haven't even started an IRA yet because I want to build my cash reserves to have both security and instant business opportunity.



This post was edited on 1/6 at 5:38 pm


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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29672 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

I'm not of the group willing to raid a 401k for an emergency.


You don't have to. Fund your Roth first.






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NaturalBeam
LSU Fan
Member since Sep 2007
13067 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

Me too, when forced to choose between setting myself up for now and the future, I will always choose now.

To be more specific, I haven't even started an IRA yet because I want to build my cash reserves to have both security and instant business opportunity.
Me too. I'm just about there on my emergency fund goal and haven't yet started a Roth or any other type of retirement per the recommendations of my advisor. Obviously a lot of this depends on the OP's age, but I'm 28 and am comfortable with it. If I'm older and just now starting on all this stuff, retirement would be more of a priority.






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HurricaneDunc
Bowling Green Fan
Houston
Member since Nov 2008
9308 posts

re: Rank these financial priorities - debt, savings, etc.


Why not use a Roth as an emergency fund? If you never touch it, it becomes retirement. If you need it, you get to take the contribution out but still keep the gains.





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LSUtoOmaha
LSU Fan
Nashville
Member since Apr 2004
21044 posts

re: Rank these financial priorities - debt, savings, etc.


quote:

Why not use a Roth as an emergency fund? If you never touch it, it becomes retirement. If you need it, you get to take the contribution out but still keep the gains.


It's a solid point, but this brings up another issue I have. I actually did have a Roth IRA, but I have an addictive personality and would trade stocks all the time in it for a year. In the end I didn't earn or lose any money, but I was consuming so much time trading that I had to withdraw the principal and go about building wealth in other ways (paying down debt, avoiding financing, etc.)

Now, I just save as much cash as possible, and put 15% of my paycheck into a 401k (which works because I can only put it in general ETFs).

I know this is not ideal perhaps, but it works for me.






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