How do you prioritize what you should save for in life, how you handle debt and what to be ready for financially?
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This is a somewhat generalized list and will not apply to everyone, but these are some good ordered steps to take if you’re trying to get out of debt or simply manage your finances more effectively.
- 1-2 months emergency fund.
- Tackle high interest debt aggressively, starting with highest interest debt first and leaving “lower interest debt” for later (this is somewhat subjective, but I would consider anything 4.5% and lower “lower interest debt”).
- Fund 401k to company match (if available)
- 6-9 months emergency fund
- Max Roth IRA
- If an HSA is available, fund that to maximum at this step
- Tackle all “lower interest debt” (this is where some people would prefer to leave some debt in place like low interest student loans, mortgage, etc., but others will focus on tackling all debt at this step).
- If saving for a large purchase like a car or house, then fund that goal at this step
- Max 401k (unless fund choices are terrible).
- Further fund long term purchase goals and long term savings, or fund an individual investment account for long term savings in stocks, mutual funds, etc.
What are you doing form a personal finance standpoint? Depending on what an individual’s life goals are, there could certainly be some tweaks in there. For example, perhaps a 529 if saving for a kid’s future college expenses. Some steps could very well be arguably swapped (like maybe starting on 401k contributions before 6-9 months emergency fund).