Ep. 7: Ladder of Personal Finance
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Welcome back to Money Matter where I help guide you in becoming a better and more confident investor. I’ve getting a lot of questions lately dealing with where people should begin to focus their investment efforts. Should you be saving, or paying down debt or both? So I wanted to do a quick rundown of what I feel you should be doing as you start getting your financial household and investments in order.
These steps are all about momentum as most thing in life and momentum feeds motivation and confidence so as you strive to stay on track in reaching your financial goals my recommendation is to do them in this order.
First off, if your employer is kind enough to offer you a 401(k) match, then make sure that you’re invested just enough to take advantage of getting 100% of the match contribution. Meaning every dollar that you put in of your own money the company matches your dollar with a dollar of their own money. This is free money! There is no better deal out there in investing. If you make $100,000 a year and your employer will match 100% of your contributions up to 5 percent of your salary – then these means that if you put in $5,000 then your company will match that $5,000 putting in an additional $5,000.
From here let’s focus on your debt. Starting with the highest APR debt, which are most likely credit cards. Make sure that you’re not paying huge amounts of interest. You can look at interest paid as interest earned in this case! And give you an instant return when you are paying this debt down. And set goals for yourself so you know exactly when you’re paying this debt off and how interest you will save over time. That should be enough motivation to stick with it!
From here I’d like you to start focusing on having an emergency fund. Just some cash set aside in a bank that will help take the edge off of life. Have at least 2-4 month’s salary in liquid investments, or investments that are low risk and can go to cash quickly such as a money market fund.
With the 401k going, debt pay down plan going, and some fund for emergencies, you are now going to take advantage of TAX-FREE investing and open a Roth IRA account and figure how much you can contribute with the idea being as much as you can up to the $6,000 contribution limit or $7,000 contribution limit if you’re over 50 years old. Because this money grows tax-deferred and comes out Tax Free. A side from free money you’re getting from your 401k match – you can’t beat this.
If you find you have money left over, then head back to your 401(k) and contribute as much as you can up to the limit of $19,500 as of 2020. Over time that extra bump in savings that you can add which you’ve not aid tax on yet can really help the compounding process as your money works for your future self.
If you have a high deductible HSA – or Health Savings Account this can also be looked at as an investment account with fantastic tax features, such as tax-free purchased for qualified expenses. If you still find that you have money that needs to go somewhere then open a regular, non-retirement taxable account and put as much money as possible in there and invest it accordingly, or if you have a mortgage start aggressively paying that down if your goal is to become complete debt free by a certain date. Or one of my favorite investments is taking the time and investing in yourself! There has never been a better time where access to education has been as plentiful as it is now. If there’s something you’d like to know more about, find out which course are taught on the topic and learn or being in Rochester surrounded by all of our universities get on their website and see if any of the academic discussions are in interest to you and go from there. Hope this help you know where to start as you tackle your financial matters. Keep the any questions that you have coming my way. Thank you for watching! And as always thank you for giving your finances the attention that they deserve.
