Prioritize Your Savings

You’ve figured out your budget, and you are ready to start saving. How do you prioritize your savings? Do you start with your emergency fund? Maybe you payoff debt? Or, do you max out your 401k?

On today’s episode of Monday Morning Money, we’ll give you our take on how to prioritize your savings.

Plan for A Better Retirement

We created Monday Morning Money with one goal in mind.  Give you information to inspire you to plan for a better retirement. 

We publish a new episode each week.  And, we will deliver it right to your inbox.

Don’t miss an episode, subscribe today!

Get Free Weekly Tips!

* indicates required

Here is How to Prioritize Your Savings

Step 1 – Your Emergency Fund

Start at the beginning. Your first priority should be to have an emergency fund. Start with accumulating $1,000. Then work towards 3-6 months worth of take home pay. It should be accessible when you need it. But the account you set up needs to have a very clear purpose: Emergencies only.

Step 2 – Get the Free Money

Many employers will give you some of their money if you will save yours. When you are talking about 401k’s, this isn’t something new. But many employers are now matching your contributions to a health savings account.

This is free money. Your only cost: Delaying the use of it for a few years (or in some cases, decades). It is a great way to boost your long term savings.

Step 3 – Pay down Higher Interest Debt

Some types of debt are worse than others. (Rarely is debt a good thing). Prioritize paying off the debt with a higher interest rate. To us, this means any obligations which charge 5% or more. This could include credit cards, student loans, and car loans.

Try to pay these off early. It can save you a significant amount of interest. And, it will increase the amount you can save for other purposes.

Step 4 – Max out your Health Savings Account

Health care will be one of your biggest expenses in retirement. A Health Savings Account (HSA) is a terrific tool to help you pay those costs in a tax advantaged way.

If you qualify, a family can contribute up to $7,000 per year and an individual can contribute $3,500 per year. Your contributions are deductible. The account grows on a tax deferred basis. And qualified distributions are tax free.

Step 5 – Max your 401(k) or Payoff Your Mortgage

Being debt free is a liberating feeling. And, it would be hard to argue with anyone who wanted to make paying off a mortgage a priority. But, we can offer a convincing argument in favor of applying the excess cash flow to your 401(k) too.

It comes down to how far away your retirement is. The longer you have, the greater opportunity for compounding returns. But if you have less time to your retirement, the priority shifts.

In my mind, the cutoff is ten years. If your retirement is more than 10 years away, put that excess in your 401(k).  If retirement is sooner, put the extra towards your mortgage.

There are no wrong answers here.

Bonus tip:  Check to see if your employer offers the Roth 401(k)….If so put the extra cash flow in a Roth type account!

Step 6 – Max Out your Roth IRA

If you still have extra cash you want to save, look to maximize your Roth IRA account. Tax free growth. That’s a good enough reason in and of itself.

What About College Savings?

It depends. If you are a parent, college savings comes right after paying down your higher interest debt.  For a grandparent, it depends on how well prepared you are for retirement. If you’ve saved enough to have the retirement you want, saving for college can fit in just about anywhere.

A Recession Knocking On The Door

If my inbox, the headlines, and the magazine covers are any indication, there is a recession knocking on our door.  How could that affect your accounts? And, what can we
Watch Now

Have To Retire Early? Here is What Happens.

Nearly half of Americans plan to work beyond age 65. But studies show only 19% are able to do so. For some retiring at a younger age is a choice. They've saved enough and confidently walk away. But what if you have to retire early? What happens to your finances?
Watch Now

The New Social Security Scam

There is a new Social Security scam.  You get a call and are told your Social Security number is linked to fraudlent activity.  We have an actual voicemail and a
Watch Now