Money Matters

[Schneed10]

Originally Posted by That Guy

seriously:

- first max your 401k matching (ie, if your employeer will give you free money in a ratio to the amount you invest) - its free money

-second max your roth ira (uses post tax dollars, but unlike traditional IRAs, it' not tax deferred, it's TAX FREE).

-third you can invest anything beyond that you wish into IRAs or what have you. tax deferred investments aren't as good as free money or investments that are only taxed on principle and not on interest.

debts grow faster than savings though, so accelerating mortgage payments and paying off those credit cards and loans are generally good ideas.

Good post. There are so many articles and books out there on getting your financial situation in order. They all basically go like this:

1) Figure out how much you spend. Either track everything anally by keeping receipts and whatnot. Or at the end of the month, check out your bank and credit card statements, and total up the outflows.

2) Figure out ways to cut your spending, and start doing it. Make sure you're spending less than you're earning each month. Hopefully at least 10% less.

3) Build up an emergency nest egg. Take that 10% and sock it away in a savings account or money market. Save up enough to support yourself for 3-6 months if you were laid off. Everyone needs a financial safety net.

4) Once you have the nest egg, take that 10% of your pay, and use it to pay down high-interest debt, like credit cards. Once that stuff is paid off, go to step 5.

5) Start building up your retirement and cash savings. Keep socking away that 10% in IRAs and your savings accounts.

If your employer offers a 401K with matching, as That Guy said, DO NOT pass on it. It's like they're putting a bag of money on the table and saying here take it. To not take it would be retarded. If your employer has a 401K, before you even get started on Step 1, make sure you're contributing enough to get the full match.

Other tips:

- If you have children and/or a spouse, make sure you have life insurance. Don't leave them without a safety net if you croak. It will be hard enough on them if you died, the last thing you want is to see them struggling financially too.

- In retirement accounts, hold stock funds. First off, retirement accounts are either tax free or tax deferred (depending if it's a Roth or a Traditional). And in your cash accounts, tend to hold safer investments. Definitely don't do it the other way around. It's inefficient tax management.

- If you've got 20+ years before you retire, make sure you're mostly in stocks (aka equities). Stocks make the most money. They have down years, so you have to be willing to stomach the occasional dip. Just know that if you have enough time before you need the money, they'll surely come back up. Be willing to ride the rollercoaster and it will pay off in the end.

- Diversify your holdings. Dont put 100% of your money in 3 different stocks. Own mutual funds. This way if one company goes belly up, you're not screwed.

- Index mutual funds are the most cost efficient funds available.

- If you don't own a house/condo, save up for one as soon as you possibly can. There's no better way to build net worth. The mortgage interest is tax deductible which equals a big tax refund each year. The value of your house grows over time, so when you sell it, you'll have more money for a bigger house. And your mortgage payments help build up equity in the home, which is an asset you can draw on later.

- Don't spend money on fancy cars. Cars depreciate in value faster than just about any asset out there. Just get something reliable and safe. It's no fun, I know, but it's financially wise. Certified pre-owned with about 20K - 40K miles gets you the most bang for your buck from a depreciation standpoint.