Author Topic: Reference list of what to do with extra money  (Read 2299 times)

ysette9

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Reference list of what to do with extra money
« on: August 18, 2016, 01:09:50 PM »
Hello all,

I've read multiple times a detailed list of instructions on where to put extra money each month and why. I know the list starts off with items such as contributing to 401(k) up to employer match, paying off high-interest debt, contributing to an HSA, etc. and then is followed with brief reasons for why to do each step in that order. I have searched a ton in the forums and for the life of me I can't find one of these postings today. Can someone please post it again here? I also think the guidance is good enough to consider being a permanent post or included in How To Write A Case Study permanent post. Thank you!

raffmaster

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Re: Reference list of what to do with extra money
« Reply #1 on: August 18, 2016, 01:22:21 PM »
This graphic from reddit.com/r/personalfinance is a good starting place IMO.
https://i.imgur.com/1rPEkGQ.png

Proud Foot

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Re: Reference list of what to do with extra money
« Reply #2 on: August 18, 2016, 01:37:18 PM »
MDM is the one I always see posting that.  Its included on the  spreadsheet in the How To Write A Case Study post.  Look at the Investment Order tab.

ysette9

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Re: Reference list of what to do with extra money
« Reply #3 on: August 18, 2016, 01:44:39 PM »
That link to the flowchart graphic is great. I hadn't seen it before. The part it doesn't include which I like from various forum posts are the "whys" on each step.

ysette9

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Re: Reference list of what to do with extra money
« Reply #4 on: August 18, 2016, 01:45:37 PM »
Quote
MDM is the one I always see posting that.  Its included on the  spreadsheet in the How To Write A Case Study post.  Look at the Investment Order tab.

That's my problem: I am at work and all file attachments from external websites are blocked so I can't pull that sucker up. Thanks for the info though.

tweezers

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Re: Reference list of what to do with extra money
« Reply #5 on: August 19, 2016, 09:31:05 AM »
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 Traditional IRA or Roth (or backdoor Roth) based on income level            
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, 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: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see            
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/         
   if you want even more details on that topic).  See also         
   https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081,         
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started msg868845/#msg868845 and other posts in that thread about exceptions to the rule.         
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            
            
The emergency fund is your "no risk" money.  You might consider one of these online banks:            
   http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001         
               
If your 401k options are poor (i.e., high fund fees) you can check            
   http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/         
for some thoughts on "how high is too high?"            
            
Priorities above apply when income is primarily through W-2 earnings.  For those running their own businesses (e.g., rental property owner, small business owner, etc.),            
   putting money into that business might come somewhere before, in parallel with, or after step 5.         

MDM

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Re: Reference list of what to do with extra money
« Reply #6 on: August 19, 2016, 09:34:39 AM »
Thanks tweezers!

ysette9

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Re: Reference list of what to do with extra money
« Reply #7 on: August 19, 2016, 10:08:30 AM »
Yay!!! Thank you so much. I am saving this list off to the side since I seem to reference it so frequently. You da best.

Happy Friday.