Financial Priorities

Need a plan for getting out of debt and onto the financial high ground? Follow this plan, in this order, and be patient.

1. Participate in your company's matching 401K or 403B.
   
2. Put $1000 in a savings account and don't touch it unless there is an emergency.
3. Pay off your credit cards, personal loans and car loans, highest interest to lowest.
4. Go back to the $1000 and start building it up to an emergency fund that you could live off of for 8 months. I'll blog more about this in the future. Keep this in a savings account where you can get to it easily.
   
5. Contribute the maximum amount to a Roth IRA. For most of us, that means $5000/year.
6. Save for and buy a house, preferably without a mortgage or with 20% down to get the best rate.
   
7. Pay off your student loans.
8. Increase your contributions to your 401K or 403B up to the maximum.
9. Pay off your mortgage.

Simply ignore the steps that don't apply to you. Obviously, if you have no job or your employer doesn't match funds, then step 1 is not an option. You'd do better to move swiftly towards saving your money in a Roth IRA. You could even put some of the emergency fund in a Roth IRA, since you can withdraw that money (but not the interest accrued) at no penalty. But you should keep some emergency funds ($1000-$3000) someplace more readily available.

My emergency savings in an ING savings account at 1.4% interest. That's about the best you can find right now, but FNBO is currently offering 1.5%.