I am no financial expert, but I research this stuff a lot and I'm starting to get a clearer picture of how to live a better financially secure life. What do you guys think about the order or priorities here to a life of well-managed finances? I've made some bad decisions in my life, and I'm more enthused then ever to make the right decisions from here on out.
1. Assess your situation
--take stock of your life--what kind of life do you want? Figure out where you stand right now. List you Assests and Liabilities:
Assests: cash, bank accounts, stocks, bonds, mutual funds
Liabilities: student loans, car loans, credit card balances
2. Pay off debt:
--high interest credit cards, car loans, higher-interest student loans (abv 10%).
3. Start an Emergency Fund:
--I think some people would advise this be done earlier, but seriously, if you have a lot of high-interest debt there's no point in filling up an emergency fund. Also, I do think you do need something though to help you survive job loss or hold you over while you pay down your high-interest debt. So I think setting up an emergency fund should happen early in the process--Even if it's just $1000 that you can access easily in case of an emergency. It seems keeping this cash stashed in a high-interest online savings account from someone like ING direct or HSBC is a great thing--they pay over 4.5% interest and they don't hit you with fees if you take it out--there is also no minimum balance.
4. Invest in a Roth IRA
--Just pay the tax upfront and avoid paying when you retire and paying a lot more because you got yourself into a higher tax bracket. I'd say if you're approaching 60 years old and you don't expect to make that much more money per year, then do a traditional IRA. Tax free investing sounds good to me! Also an empoyer sponsored 401(k) can be good.
5. Buy a house you can afford to
If you're building your emergency fund up well, have most high-interest paid down, and are contributing monthly to an IRA or 401(k) program and got a few good thousand in the bank, why not start looking for a house?--Start turning Rent payments into equity. Even if rent is low (like under $600 a month), why not see if you can use some emergency fund to put a down payment on a house?
6. Invest in stocks/mutual funds outside you IRA/401(k)/Target Date fund.
--Start earning potentially high interest-returns on some stocks in a brokerage account.
7. Pay off low-interest student loans with the higher interest from your (hopefully) bigger income over the years. Also use money earned in stocks/mututal funds (at a higher interest rate then your student loans) to pay down your debts.
8. Invest in yourself. Take courses to improve yourself. Be it in a higher degree that earns more money, some other course that helps you save money elsewhere (like car repair/computer tech). Or just in something you love to do--hobbies and such that could earn money some day, or help expand your social circle.
This is what I have decided so far--I'm sure my strategy will change with time, but for now this is what I'm thinking. What do you guys think? Can you help me change any of these ideas or add something to make a better plan? Much thanks.
