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Question:


As the economy recovers, how should people prioritize financially: Building up savings account/emergency funds? Maxing out retirement contributions? Buying property? Paying off debt (student loans, credit cards, mortgage)? Investing in the stock market?
-Chelle10


Answer:


How about all of the above? One strategy often recommended by financial planners is to pay some money every month toward all of your goals, although the amounts will vary depending on the size and importance of each and on the comparative benefit that accrues from the payments you make.
 
If you’ve got little or no cash on hand or your employment situation is precarious, you might want to assign top priority to an emergency fund. The tax advantages and matching employer contributions of retirement accounts ought to bump them up the list of priorities for most people too. Interest rates on debt, especially on credit cards, are typically higher than the returns available on investments like stocks and bonds, so if you owe a lot, you’re probably better off bringing the balance down as quickly as possible.
 
It’s important to note that these worthy goals are not mutually exclusive. It’s possible to kill two or three birds with one stone. For instance, if you add to your retirement plan at work, you can use the contributions to invest in stocks. As a bonus, you can use the extra cash that accrues from the tax breaks to add to your emergency fund or to chip away at your outstanding debt. Reducing your indebtedness should leave you with more cash for other purposes and give you greater access to credit for emergencies. As long as you’re disciplined and frugal, all of the above isn’t all that difficult to achieve.
-Conrad de Aenlle



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