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Started By
Message
Rank these financial priorities - debt, savings, etc.
Posted on 1/6/13 at 9:19 am
Posted on 1/6/13 at 9:19 am
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%).
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 1/6/13 at 9:20 am
8
Posted on 1/6/13 at 10:30 am to HurricaneDunc
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
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
Posted on 1/6/13 at 10:37 am to Lookin4Par
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.
Posted on 1/6/13 at 10:49 am to HurricaneDunc
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.
Posted on 1/6/13 at 10:54 am to Joshjrn
3-6 months is the answer you'll get most often.
Posted on 1/6/13 at 10:56 am to Joshjrn
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)
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)
Posted on 1/6/13 at 11:19 am to HurricaneDunc
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
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
Posted on 1/6/13 at 11:20 am to Lookin4Par
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.
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.
Posted on 1/6/13 at 1:14 pm to Joshjrn
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.
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.
Posted on 1/6/13 at 1:34 pm to Joshjrn
Emergency fund should be priority #1, even with near 8% student loans IMO
Posted on 1/6/13 at 1:44 pm to HurricaneDunc
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.
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.
Posted on 1/6/13 at 3:09 pm to HurricaneDunc
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.
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.
Posted on 1/6/13 at 4:06 pm to HurricaneDunc
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.
Posted on 1/6/13 at 4:35 pm to HurricaneDunc
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
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
Posted on 1/6/13 at 4:52 pm to HurricaneDunc
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.
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.
Posted on 1/6/13 at 5:37 pm to Queen
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 1/6/13 at 5:38 pm
Posted on 1/6/13 at 7:19 pm to Queen
quote:
I'm not of the group willing to raid a 401k for an emergency.
You don't have to. Fund your Roth first.
Posted on 1/6/13 at 8:33 pm to LSUtoOmaha
quote: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.
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.
Posted on 1/6/13 at 9:19 pm to LSUtoOmaha
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.
Posted on 1/7/13 at 10:26 pm to HurricaneDunc
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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