Cheat Sheet for Prioritizing Personal Finances

It’s quite common to put off financial organization and planning as it can be overwhelming and confusing. Most people we meet with have some variation of the following question: What's the right thing to do first? Should we Save for retirement? Pay down debt? Buy life insurance? Save for college?

We’ve created a quick “Hierarchy of Financial Needs” with some common rules to help you prioritize your finances. 

  1. The Foundation

    Paying your bills is first and foremost. Most people live paycheck to paycheck, with little left over. Creating a basic budget by reviewing average monthly income and expenses is a great place to start. A budget review might help uncover expenses that can be cut in order to start saving more.

    Short term debt should be addressed as well. After all, credit cards can charge 10-25% interest annually.

    If your retirement plan offers a match (such as a 401(k), 403(b) or Simple IRA), you need to contribute enough to get that match. That’s free money for retirement (and part of your compensation package) which shouldn’t go unclaimed.

  2. Protection

    Consider starting an emergency fund that consists of 3-6 months of normal expenses (review the budget). 6 months if there is only one earner in the family, 3 if there are 2 earners. Unexpected expenses (auto repairs, healthcare costs, etc.) need to be expected and planned for.

    Term Life insurance is an important and inexpensive tool to ensure a death will not derail your family’s finances. Having a 10-30 year policy can ensure debt gets paid, income is replaced, kids are taken care of or the nest egg is funded.

  3. Future Goals- Retirement

    Saving through an IRA or a workplace retirement plan is the most common way people set money aside for future use. There are tax benefits towards doing so, and potential account growth means less money needs to be contributed now. The only money that’s going to be there in the future is money that’s saved today.

  4. College Savings

    Helping children through college is a great way to ensure they graduate with less debt. However, many people do so at the expense of saving for themselves. The greatest asset an investor has is time, so we encourage most people to prioritize their own retirement as it gets closer over college savings.

  5. Thinking of Others

    Once your own family and retirement is taken care of, additional money can be shared and gifted to charities that you are passionate about. Speak with your charity about ways you can do non-cash giving- which can be an effective tax saving strategy as well.