This Cheat Sheet Shows You How to Prioritize Savings and Debt.
People always seem to have questions about their financial priorities: invest or pay off debt ? Save 401 (k) in my job or open an IRA ? This cheat sheet will tell you. It helps you visualize your financial priorities in the most general terms.
This is something like the previously mentioned “ ladder method ” that tells you how to prioritize your investments. But this “retirement wrap,” as Reddit puts it, includes all of your finances in general: debt and emergency funds. It also helps you visualize it. Here is a basic explanation of each line, and if you want more details, just click on the links in each.
- Emergency Fund : You must have a back-up first.
- Matching 401 (k) contributions : It’s almost like free money, so you want to take it if you can.
- Debt . Obviously, paying off your debt is important. These interest rates will kill your finances.
- Individual Retirement Accounts (IRA): Make the most of them if you can. Savings for retirement are important.
- 401 (k) : Do you have cash left? Congratulations, moneybags. Now go back to saving to your 401 (k). You don’t have the flexibility that an IRA does, but at least you have a tax advantage.
- Savings / Investments : If you STILL have money after you run out of your 401 (k), then put it in your personal savings or taxable investment account.
Note : This cheat sheet reflects the old income cap for 401 (k) s. The current limit for 2015 and 2016 is $ 18,000.
You may disagree with every step in your situation. For example, you may be planning to buy a home, so after you exhaust your IRA, you would rather contribute to your personal savings (which is the best place to park your home down payment) than go back to 401 (L). Of course, your own priorities may differ, but it still gives you a general idea of 101 personal finances.
Pension Packing | Imgur via Reddit .