Financial Priorities

[CGooden]

Hey Guys,
I was wondering if anyone can give me advice on how to clearly define my financial priorities. I feel as if this is a lot easier said than done. I mean sure, there are people who are more adept at handling their finances than others, but i'm trying to figure out where to start and what needs to be prioritized as I make my way to FI. Any tips would be grateful, or if there is another thread on here that has the answers I seek, I would appreciate a nod in the right direction.

[Eric]

Something like this?  It's hard to know without you listing what your priorities are.  For instance, I'm a lifelong renter who lives in a city with no kids.  I'm sure my priorities are different than someone who owns a farmhouse with 8 kids in the middle of nowhere.

[CGooden]

You're right, but the diagram gives me a starting point. I'm currently renting, no kids and that seems to be the plan at least for now. I'm working and paying off my student loans and debt also.

[meandmyfamily]

Don't forget HSA

[hankscorpio84]

Found this flow chart over on reddit personalfinance  It seems appropriate.

http://imgur.com/g6j4IRu

[mountains_o_mustaches]

Found this flow chart over on reddit personalfinance  It seems appropriate.

http://imgur.com/g6j4IRu

This is helpful because it includes different types of debt, saving for big purchases (house, car) - a bit more fleshed out than the other graph.  Thanks for sharing!!

[patchyfacialhair]

I need to put this on my mirror or something:

Specific Question(s): So once I pick up the proceeds from the sale of the house today we will have $20k plus a crap-ton of extra money every paycheck. What order would you tackle these goals?

See below for one defensible prioritization order.  The current 10-year Treasury note yield is ~2.2%.  Differences of a few tenths of a percent will be insignificant over a few years, so using a coin toss (or gut feel) when options are that close is fine.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

I ripped that from the "best of" thread in general discussion.

[notarealdoctor]

I need to put this on my mirror or something:

Specific Question(s): So once I pick up the proceeds from the sale of the house today we will have $20k plus a crap-ton of extra money every paycheck. What order would you tackle these goals?

See below for one defensible prioritization order.  The current 10-year Treasury note yield is ~2.2%.  Differences of a few tenths of a percent will be insignificant over a few years, so using a coin toss (or gut feel) when options are that close is fine.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

I ripped that from the "best of" thread in general discussion.

This is great! Thank you for bringing it into this discussion. I particularly appreciate using the 10 year treasury note rate as a point of reference for paying down debts. That is a marker that I hadn't come across before, but it makes a lot of sense.

[MDM]

This is great! Thank you for bringing it into this discussion. I particularly appreciate using the 10 year treasury note rate as a point of reference for paying down debts. That is a marker that I hadn't come across before, but it makes a lot of sense.

See the 'Investment Order' tab in the spreadsheet referenced in http://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/ for the latest version of those "What & Why" lists.  Not much different than what is above, but we do try to incorporate improvements as they come along.

[Jim2001]

+1 for the "what" and "why". 

I like to take them to an extreme.  "I must do _______ (fill in the blank) because it will improve my life ________ (fill in the blank), and if I don't it will cause me pain  _______ (fill in the blank)".

One of my early ones was "I must save massively for retirement because it will improve my life while I'm still young enough to enjoy time with my grand kids, and if I don't save massively for retirement, it will cause me pain because I don't want to ever be homeless".

Make it powerful by making it very personal.

[CanuckExpat]

This is also a good place to start: https://www.bogleheads.org/wiki/Getting_started