another look
In a recent column, Liz Pulliam Weston, of MSN money (a regular read of mine) advised that retirement comes before paying off credit cards, which comes before an emergency fund.
First of all, how timely! I just got finished griping two days ago about not knowing how to prioritize my goals for the little money I have.
Secondly - how contrary! Everybody and their mama wants to talk about the emergency fund coming first and foremost. Then again, everybody and their mama has different situations and priorities. On the real, I get that, because if something goes down, it’s nice to know I’ll have at least a small cushion before I’m forced have to start getting myself into more debt. Having an emergency fund is great! But seriously, Ms. Weston says that retirement comes first because for every time you don’t invest for retirement, you lose money. Even in the short time since I’ve been hosting this blog, I’ve said that numerous times. It’s true. But it still is interesting to see her put the emergency fund last.
I understand the reasoning. Theoretically, I can afford to use my credit as an emergency cushion if I need to, without worrying, provided I’m not already in too much debt. I think for someone with my level of debt in proportion to resources, that’s not quite true yet. But I can make it true, if I make my consumer debt go away.
If I were to follow this reasoning, then paying myself first (as is often advised) would really mean paying my FUTURE self first - payroll deductions for the 401K before my pay even hits my account. (I’ve noticed, by the way, that most folks with a positive net worth have a lot of retirement assets.) Then I would knock out as much debt as I can. Once that’s gone/under control, then I can start beefing up the emergency fund. Actually, that is already the plan, pretty much. But I gotta fit the house in there somewhere, and the wedding, too. Hmm? How ’bout this hierarchy of priorities for my discretionary income?
retirement|debt repayment|house and wedding|spending account so i can be cute|emergency fund
How’s that sound?
I don’t think I agree with Liz on this one, I do normally like and agree with her writing even though I have a Y chromosome
I don’t knock anybody’s hustle though, as long as your saving, you should be happy. But I would go credit cards first, emergency fund, then retirement. At least get $1000 in the emergency fund then split between retirement and emergency. If you owe $5,000 in credit cards, what are you doing contributing 8% to a 401K or even maxing a 401K out (my dream someday). nice post though, keep it up girl 
Comment by Rad — July 5, 2007 @ 4:57 pm
I have a lot of debt, credit cards, car loans, student loan. I am aggressively working on paying down my debt. However, I am currently saving for retirement at the same time. I contribute the minimum needed to get the employer match. It is pretax savings and my percentage is so small that the change in my net pay is negligible. Currently, my 403B is one of the few areas of my financial life that is going wel. I also have a small emergency fund of a few hundred dollars.
It makes sense to me to do things this way. it works for my situation and gives me an easier peace of mind.
Comment by tiredofbeingbroke — July 7, 2007 @ 10:08 pm
I agree with Tiredofbeingbroke. Getting the company match is getting free money, I don’t think you should contribute more than that, send the rest towards your credit cards if your in debt, good plan girl. I used the 8% example because my company only matches the first 6% you contribute so I guess that was in my subconcious.
I made very small contributions to my emergency fund while paying off debt, a very small amount, so I see the argument for this method as well. I owuld focus the bulk of my money towards paying the debt off first though.
Comment by Rad — July 11, 2007 @ 2:49 pm