Follow these 5 priorities to manage your money successfully.
Money Girl
288 MG How to Make Decisions About Personal Finances
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Most of us have been in Natalie's shoes, unsure about the next best financial step to take. In this episode, I'll give you a financial roadmap to follow, so you'll know exactly how to manage your money. Instead of worrying about making a bad move, just follow these five financial priorities. Priority number one, max out workplace matching contributions. If you have a job that offers a retirement plan, that's a valuable benefit. And if your employer matches contributions, well, that's like winning the lottery every month because you get free money without having to do extra work. Let's say you make $50,000 a year and your employer matches 100% of your 401(k) or 403(b) contributions, up to 3% of your salary. That means if you contribute $1,500 a year or $125 a month, your company also kicks in 125 a month. Matching funds are so fantastic because they give you a 100% return on your money, no matter what happens in the financial markets. I don't know about you, but I'll take a guaranteed 100% return all day long. That's why taking advantage of matching funds should be your number one financial priority. Even if you can't contribute the recommended 10% to 15% of your income for retirement, always contribute enough to max out an employer match. Otherwise, you're leaving money on the table. Priority number two, accumulate emergency savings. After maxing out employer matching, your next financial priority is to build a healthy emergency fund. If you don't have a retirement plan at work with matching or yourself employed, this step is your first priority. Emergency savings are so important because they keep you from having to rely on expensive credit cards or loans if you hit a financial rough patch like a medical crisis or a job loss. Ideally, you should save at least three to six months worth of your living expenses. However, if squirreling away that much seems impossible, just start with a small target like a thousand or two thousand dollars. An important part of having emergency money is keeping it completely safe, which is why you should never invest it. Instead, keep it tucked away in a high-yield FDIC and short savings account so it'll be there when you need it. I'll put links to the best savings accounts for your emergency fund on the Money Girl page at quickanddirtytips.com where you'll find a transcript and additional resources for each show. Just look for episode number 288 called How to Make Decisions About Personal Finances. PrEP for Thanksgiving at Whole Foods Market Save now on no antibiotics ever frozen whole turkey. Just one forty-nine a pound with prime. Sales on brie and select seafood appetizers help get things started. For sides, go with wallet happy favorites from 365 by Whole Foods Market and finish with decadent desserts from the bakery. Or get your whole spread catered just order early. Get Thanksgiving ready at Whole Foods Market. Terms apply. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science and social studies. Ixcel has interactive practice problems for topics from pre-k to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems and learning games too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning. Get Ixcel now and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at Ixcel.com/moneygirl. Visit Ixcel.com/moneygirl to get the most effective learning program out there at the best price. If the new chicken Big Mac at McDonald's looks like a Big Mac, has sweet buns and sauce like a Big Mac, but has two chicken patties, then it's not not a Big Mac. I participate in McDonald's for a limited time. Priority number three, pay high interest debt. After accumulating some emergency savings, your next financial priority is to tackle high interest debt such as payday loans, credit cards, and car loans that are in the double digits. Also, if you've missed any debt payments, be sure to get current so you don't rack up additional late fees and penalties. Right now, don't worry about paying low interest debts like mortgages or student loans ahead of schedule because they aren't costing you much. Additionally, they come with built-in tax deductions, which further reduces their cost on an after-tax basis. Priority number four, max out a retirement account. After building cash reserves and chipping away high interest debts, it's time to max out a retirement account. They allow you to save from the future and cut your taxes at the same time. However, you should never invest money in a retirement account that you might need before age 59 and a half because you typically have to pay a steep 10% penalty for early withdrawals. For those with workplace plans, you can contribute up to $17,000 or up to $22,500 if you're age 50 or older for 2012. But if you don't have a retirement plan at work, no worries. Anyone with earned income can have an individual retirement arrangement or IRA. IRAs generally give you much more flexibility and more investment choices compared to the typical menu of options for workplace plans. However, you can't contribute as much. For 2012, you can put in up to $5,000 or up to $6,000 if you're age 50 or older in either a traditional IRA, a Roth IRA, or split the limit into both. If you're not sure what a Roth IRA is, I did a two-part podcast called Your Guide to the Roth IRA, which starts with episode number 272. If you have enough cash, you're allowed to max out both a workplace plan and an IRA in the same year. But depending on your income, contributions made to a traditional IRA may not be fully tax deductible when you or a spouse also participate in a retirement plan at work. For more on this topic, be sure to listen to podcast number 216 called "Should You Contribute to Both a 401(k) and an IRA." Priority number five, invest in a taxable account. Once you've maxed out all your tax advantage retirement options and still have more to invest, use a regular taxable brokerage account. It doesn't come with a tax deduction, but you can access the money any time you want with no restrictions or penalties. Brokerage accounts are a great place to invest money for long-term goals that you want to achieve in about 10 years or so, like buying a home, starting a business, or taking a dream vacation. Or if you want to use excess cash to start paying down your low interest debts instead, like student loans and mortgages, this is the time to do it. So the answer to Natalie's question about what she should do next is that she should do everything, pay debt, build an emergency fund, and invest. But she needs to do them in the right order that we just covered. Here's a review of priorities for Natalie. Number one, take advantage of any employer matching. Number two, build up an emergency fund of at least $2,000. Number three, pay down high interest credit card debt right away, but don't pay low interest to the loan debt ahead of schedule. Number four, max out a workplace retirement plan, an IRA, or both. And five, invest excess cash through a taxable brokerage account. Following these five priorities will help you set financial goals, leverage your resources, and build wealth as quickly as possible. Want more money advice? Visit smartmoves2growrich.com and sign up for my money tips. Also, download two free chapters from my book by the same name, Money Girls Smart Moves to Grow Rich. Also, be sure to connect with me on Facebook, Twitter, and Google+. If you have a money question, send it to money@quickanddirtytips.com. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to our richer lives. Is it time to reimagine your future? The right business skills may make a difference in your career. 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