Show Notes
There are so many demands on your paychecks, it can be tough when you don't have enough cash to tackle all that at once. Here are my recommended top 3 priorities.
Emergency Fund. A common rule of thumb is to have three to six months of essential living expenses set aside. This will include groceries, your rent or mortgage payment, car payment, gas, and utilities, as well as insurance (health, life, disability, home, auto, renter’s…) If you lose your job or are furloughed, you can still cover all your expenses for t a few months while you get back on your feet. Three months worth of expenses can seem impossible at first. I recommend you start with a $1,000 goal. Put away what you can each month in a savings account Even if it's just $50 or $100 a month, keep it up and when you hit your first thousand dollars milestone dance a little jig and lift your sights on the three-month prize.
Ever wonder how you eat an elephant? One bite at a time. So, tackle your emergency fund the same way.
TSP Match. Contribute enough to your Thrift Savings Plan (TSP) to get your employer match. This is literally free money. For military in the Blended Retirement System, when you contribute 5% of your base pay to TSP, the government will match it, that is it put an additional 5% into your TSP account. Federal employees in in the Federal Employee Retirement System (FERS) who contribute 5% of your combined basic pay plus locality pay also get a 5% TSP match. Regular civilian employees such as spouses with 401(k) or 403(b) retirement plans through work often had some kind of match as well. Ask about the details. https://www.tsp.gov/making-contributions/contribution-types/
Saver’s Tax Credit. The Retirement Savings Contribution Credit, nicknamed the Savers Credit, is a program to help savers with modest income put away little extra for retirement. Up to certain income limits, military and civilian employees that put at least $2000 a year in their TSP (or other qualified retirement plans like IRAs and 401(k)s) can receive the federal tax credit for up to 50% of their contributions. This is a tax credit that will reduce your federal tax bill dollar for dollar (but not below zero). https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
Pay off Credit Cards. The average interest on a credit card balance is from 14% to more than 25% a year. If you have $1,000 in credit card debt, that could be more than $250 in interest added in the first year. But that snowballs as you pay interest on top of interest. Chances are, if even you stop using the card and you're making minimum payments, that balance on your card will still grow, larger year after year, like an elephant.
The only way out from under this is to make larger payments on your card until the whole thing is paid off. Find a payment that is more than the minimum required, and pay each month until it starts to shrink.
How to Prioritize? You can tackle these three savings priorities one at a time. I recommend you put some money toward each one every month, starting now. You'll gain a bit more peace of mind each month knowing that you can weather a storm, you're investing extra, free money for your future, and that credit card elephant is will start disappearing before you know it.
If you have any questions about today’s show or would like to learn more, reach out and let’s do this, together. https://www.moneypilotadvisor.com
