Re-Organizing Financial Priorities

I’ve basically stuck with a savings plan that’s worked for ten years.

1. We have a set amount that we need to save every month. When we hit that goal for a few successive months, I increase it. I arbitrarily started at $1,000 when Marge and I moved in together in 2005. Right now we are at $3,500 a month.
2. Force those savings by making automatic weekly investments that add up to the monthly savings goal into different Vanguard funds. Every day of the week, small investment amounts wave bye-bye to our checking account and get down to the dirty work of earning dividends and capital gains.
3. Any excess over the goal goes to pay down debt.

I am re-thinking that second part for a few reasons. Formerly I’ve been doing weekly investments into retirement accounts, emergency savings, stocks and Lending Club so that I end up just maxing out our retirement savings contributions at the end of the year, and the amounts in the other accounts line up with our asset allocation. Here’s why I’m thinking of switching up that very precise system:

1. Since we are buying a rental property, we need a lot of cash, which we were short on. So I stopped all auto-investing and starting putting all savings in the Money Market Mutual Fund for our down payment, so we are doing no saving right now except for the house purchase.
2. After my earth-shattering post about retirement accounts, and where your priorities should be depending on which you can access, I realized I should be maxing them out in the order of priority to get the best “bang per buck.”
3. Also with the new house, we are adding more debt payments. That means we have two mortgages, a home equity line of credit, two student loans, and a car loan. That’s, like, so many different things to pay off!
4. The maxing-out one at a time approach seems to be something Leigh at Leigh’s Financial Journey does as well, and I’m thinking I should apply that to debts as well. Instead of paying extra on a bunch of different loans, and putting money into a bunch of investments a little at a time, it would be more rewarding to attack one at a time. Like going down a checklist!

So I’m thinking that for 2016 at least, our financial priorities will shift. Instead of planning to just barely max out contributions by the end of the year, and whatever extra is saved each month going into debt, I will do one thing at a time. Finish one, move on to the next. Here’s what I’m thinking:

1. Make sure Emergency Fund is fully funded.
2. Max out Norm’s 457 Plan ($18,000)
3. Max out Norm and Marge’s Roth IRAs ($11,000)
4. Increase to Marge’s 401(k) at present fees ($9,000)
5. Pay off Home Equity Line of Credit
6. Pay off Student Loans
7. Pay off Mortgages

Then once January rolls around again, it starts over back at #1. This puts super priority on retirement accounts. You might also notice the car loan is not listed. That’s because we’re on the verge of paying that off. At $3,700, I just wanted to be done with it.

And this order could change. Marge’s employer might be switching 401(k) providers. You remember her 401(k) provider, don’t you? The one with 2%+ fees? I hesitate to give them more money, even if it would be a better return than paying off those debts. But if they do switch to a cheap provider like my 457 Plan, I would max it out and move it up in priority ahead of the Roth IRA contributions.

Of course I will continue to put something into the Emergency Fund throughout the year since that is where I take our property tax payments from, and usually we have an income tax bill. Have to plan for that stuff!

Is this what other people do? Have I been doing this the wrong way this whole time?