One of the reasons I titled this site My Next Buck was because I wanted to keep track of where my next dollar was going. Was it being spent on food, drinks, or put into a savings account? While this is important for me, there are some ways to take what I am trying to do and apply it to your life.
Many are in agreement as to where our money should go after we get paid. Here are the typical steps a young professional’s money should flow out of their wallet:
1: Contribute to 401(K) to your employer match – this is free money, take advantage of it. (varies on company match – max of $16,500 in 2010)
2: Pay off consumer debt – if you have credit card debt, it’s time to pay those things off.
3: Max out your Roth IRA – you can’t beat tax free earnings. Every person in their mid 20s should have a Roth IRA if they qualify. ($5,000 annually)
4: Build an emergency fund – pick a number that will be able to sustain you anywhere from 1 month to 6 months and start socking the money away. (1-6 months of expenses)
(After priority four, things get a bit fuzzy. The next four financial priorities are all equally important in my opinion. If you do any of them, regardless of order, you are in good shape. Or you can do a bit of each and diversify your money.)
5: Pay off low interest debt – this is your car payment, your school loans and your home mortgage. Anything with less than 8% interest.
6: Build savings goals – start saving for those near future expenses. Want to go on a rockin’ cruise or relive spring break with your friends? Start saving so you don’t have to dump it on the credit card.
7: Invest in the market – let your money work for you by putting it into the market and watch it grow in a brokerage account.
8: Max out the rest of your 401(K) – some people would say this would be the natural number “5” as it’s the last of the priorties that has a “real” number as it’s limit. However, depending who your 401(K) is through, you may have a hard time investing in some of the better funds out there. That’s why I am putting it last on my list. (max of $16,500 in 2010).
Do you want to see where My Next Buck is prioritized? Take a look at the image and you will get a sense of where my 2010 priorities lie.
As you can see, at the bottom, my lowest priority (but still important) I put my money into savings goals, the market, and I pay off low interest debt.
Does your money flow like this? Do you prioritize something differently than myself?