I ran across this eight step plan rolled out by Charles Schwab to help others prioritize what to do with their money. Here is the list:
1. Contribute to your company’s retirement plan at least up to the amount of any match offered.
2. Pay off non-deductible, high-interest debt, such as credit cards.
3. Create an emergency fund with three months’ worth of living expenses (keep in a savings account).
4. Max out the rest of your 401(k) contributions.
5. Save for a child’s education (in a 529 savings plan or Coverdell account).
6. Save for a home down payment.
7. Pay down tax-deductible, high-interest-rate debt like mortgages, home equity loans, and student loans.
8. Keep investing.
The first four are the biggest priorities, and the last four are at your discretion and what stage of life you are in. I have to say that Charles Schwab did a good job with these steps. The only one I disagree with is lumping the student loans and home equity loans with a traditional mortgage. I know you can get tax deductions from the interest on student loans, but I would recommend getting them out of your life as soon as possible. Your degree doesn’t act like collateral the way a house does. The point of these steps is that you can still follow them no matter what the economy is doing. Unless you’ve lost your job, what the stock market does shouldn’t effect how you handle your money. I can speak for this blog and what I see written on many other personal finance blogs that you shouldn’t let hard economic times effect your personal financial behavior. What you really should be worrying about are the people who constantly try to make moves to increase the size of our federal government. The bigger it gets, the smaller your wallet gets and the more out-of-control spending occurs by the government. So, make a plan, get out of debt, and start saving money. You’ll need it, because the out-of-control credit era is coming to a screeching halt.