What are your priorities?

[jpg7n16]

How do you prioritize your money?

This is how I pretty much do things:

1) Meet necessities of life (food, shelter, utilities, necessary clothing, necessary transportation)
2) Take free money (employer match)
3) Eliminate high interest debt (tax adjusted 7% and up)
4) Establish appropriate EF
5) Retirement Savings
6) Eliminate low interest debt (tax adjusted below 7%)
7) Wants of life


I think it'd be interesting to hear what others think, or maybe to help someone who's never thought of them at all!

[jIM_Ohio]

1) Necessities which includes paying myself 20% first
2) Minimize taxes to 15% tax bracket
2a employer match
2b higher 401k contributions than the minimum
3) Reduce short term debt (car loans, student loans, credit cards)
4) reduce long term debt (house)
5) vacations and relaxing
6) reduce monthly liability footprint (consolidate bills, save money on utilities, invest in saving money by making sure none of my regular bills is too high)

[jpg7n16]

hmm so you prioritize debt reduction by the length of the debt contract, not by interest rate?

[jaine]

1. Pay my bills on time
2. Minimize taxes
- contribute maximum to 401k
- contribute maximum to SEP-IRA
3. Retirement savings (although this is mostly the same goal as #2 at the moment)
4. Not getting into debt (saving cash for the next car / next laptop / etc)
5. Help my sister pay for college

Somewhere in there is also an environmental commitment to reusing, recycling, buying used ... which definitely affects my budget but it's not exactly a savings goal...

[jIM_Ohio]

hmm so you prioritize debt reduction by the length of the debt contract, not by interest rate?

Generally speaking, the only "long term" debt a person will have is a house and maybe a business loan. Those assets should appreciate, so they have a lower priority than shorter term or revolving credit lines.

The short term debt should be prioritized by interest rate.

If a person asked about a 9% credit card or 10% home loan, I would advise to pay off the credit card first (we saw that before on car at 3% vs house at 6%...) I prioritize the shorter term debt differently because the cars lose value, where house will appreciate. This should help net worth by removing liabilities on assets which depreciate, as well as improve cash flow faster because the shorter term usually has lower payments too.

[Slug]

1. Hookers & Pharmaceuticals
2. Protection money to 3-Fingered Louie
3. Bookie debts
4. Lottery tickets
5. Payday loans
6. Ramen
7. Liquor store
8. Child support
9. Rent-a-center payment for 52" flatscreen and surround sound
10. BMW 7 Series car payment
11. Rent
12. $ to the homeless
13. Pay down Prosper loan

[jpg7n16]

1. Pay my bills on time
2. Minimize taxes
- contribute maximum to 401k
- contribute maximum to SEP-IRA
3. Retirement savings (although this is mostly the same goal as #2 at the moment)
4. Not getting into debt (saving cash for the next car / next laptop / etc)
5. Help my sister pay for college

Somewhere in there is also an environmental commitment to reusing, recycling, buying used ... which definitely affects my budget but it's not exactly a savings goal...

So 1) Necessities, 2) tax-advantaged retirement, 3) other retirement, 4) savings goals, 5) giving

Not bad. hope you have some fun money too! And any cost savings measure is just assumed as you work through it all. I work on expenses from largest expense to smallest. Then it's just asking, "Can I reduce this any?" Nope. "How about this?" Well it'd take some change, but yes I could. etc.

[jpg7n16]

Generally speaking, the only "long term" debt a person will have is a house and maybe a business loan. Those assets should appreciate, so they have a lower priority than shorter term or revolving credit lines.

The short term debt should be prioritized by interest rate.

If a person asked about a 9% credit card or 10% home loan, I would advise to pay off the credit card first (we saw that before on car at 3% vs house at 6%...) I prioritize the shorter term debt differently because the cars lose value, where house will appreciate. This should help net worth by removing liabilities on assets which depreciate, as well as improve cash flow faster because the shorter term usually has lower payments too.

You already know my thoughts on this I think. The asset is independent of the loan in my book, and is a virtually a non-factor for which debt to pay extra to. "Well the debt costs 6%, but the asset is making 3%, so it's less interest" is not a true statement.

Now if you had said unsecured debt 1st, then secured debt - that makes more sense. Of it's that's what you meant, then that makes more sense.

And I always consider the tax adjusted figures, then go with the highest. No matter what. Mathematically you always come out ahead. 6% on house? or 3% on car? Pay towards the house for almost twice the savings (adjust the 6% for taxes). 9% CC or 10% house? Well with the tax deduction, the 10% on the house is likely only 7.5-8%, so pay on the house. But 10% after tax adjustment?? I'd pay extra on the home.

The answer is obvious when it's between paying extra on a 0% interest balance transfer on a credit card, or pay extra on a 10% mortgage. There's no way you'd pay extra on a 0% balance when you have a 10% debt, even though it's secured. But how about 1%? 2%? At what point do you change over? I let the math make that decision for me.

[jpg7n16]

1. Hookers & Pharmaceuticals
2. Protection money to 3-Fingered Louie
3. Bookie debts
4. Lottery tickets
5. Payday loans
6. Ramen
7. Liquor store
8. Child support
9. Rent-a-center payment for 52" flatscreen and surround sound
10. BMW 7 Series car payment
11. Rent
12. $ to the homeless
13. Pay down Prosper loan

haha that's ridiculous!

I mean... who buys ramen before liquor?? what a joke!

[jIM_Ohio]

1. Hookers & Pharmaceuticals
2. Protection money to 3-Fingered Louie
3. Bookie debts
4. Lottery tickets
5. Payday loans
6. Ramen
7. Liquor store
8. Child support
9. Rent-a-center payment for 52" flatscreen and surround sound
10. BMW 7 Series car payment
11. Rent
12. $ to the homeless
13. Pay down Prosper loan

If your kids are homeless is that #8 or #12 LOL

[jIM_Ohio]

You already know my thoughts on this I think. The asset is independent of the loan in my book, and is a virtually a non-factor for which debt to pay extra to. "Well the debt costs 6%, but the asset is making 3%, so it's less interest" is not a true statement.

Now if you had said unsecured debt 1st, then secured debt - that makes more sense. Of it's that's what you meant, then that makes more sense.

And I always consider the tax adjusted figures, then go with the highest. No matter what. Mathematically you always come out ahead. 6% on house? or 3% on car? Pay towards the house for almost twice the savings (adjust the 6% for taxes). 9% CC or 10% house? Well with the tax deduction, the 10% on the house is likely only 7.5-8%, so pay on the house. But 10% after tax adjustment?? I'd pay extra on the home.

The answer is obvious when it's between paying extra on a 0% interest balance transfer on a credit card, or pay extra on a 10% mortgage. There's no way you'd pay extra on a 0% balance when you have a 10% debt, even though it's secured. But how about 1%? 2%? At what point do you change over? I let the math make that decision for me.

Your logic is fuzzy to me...

we both agree unsecured debt is first before secured debt (highest interest rate first)
I would then clarify that revolving debt (credit cards) might be secured on second hand market unless the revolving debt charged dinners or movies or similar (services) which cannot be given back.

If I have a stereo system which cost $2000 and a car which cost $20,000 some basic assumptions are probably true
1) both are secured debt even if one was purchased with a loan and one was put on a credit card. This is where I think your logic is fuzzy- even if the item is on a credit card, it still could be "secured" in some interpretations.

2) Neither asset can be sold for what I paid for it. The likelihood any car can be sold for what you paid for it when you drive it off the lot is nil. This is trump card, IMO over paying high interest debt first.

3) If you then add in comparing this to a house
so a 2k stereo system on a credit card
a 20k car loan
a 200k mortgage

The house is the only one of the 3 assets which can sell for close to what you paid for it (keeping in mind there is a 6% up charge on house when you sell for realtor).

So over a short period of time (the amount of time the financing for the stereo and car exist), its my standpoint its better to not finance the assets which depreciate. I generally make this distinction regardless of interest rate (if house is 10% and car/stereo are 1% then maybe... but generally speaking 5.9% car vs 8% house, still pay off the car first).

Logic would be it would cost about 15k to pay off a car, but car is only worth 13k at the time
or car payoff is about 10k, but the car value is about 7k, so you lose money either way, until the car is actually paid off (then liquidating asset is cash on hand, and not paying off the liability). I did not create this logic, I read it somewhere a while back- do not finance depreciating assets, and pay off depreciating assets first- keeps the balance sheet clean if you have to liquidate.

[jpg7n16]

Your logic is fuzzy to me...

we both agree unsecured debt is first before secured debt (highest interest rate first)

No we don't I just said it would make more sense than longterm vs shortterm, but I pay highest interest rate 1st regardless of whether it's secured or unsecured.

I would then clarify that revolving debt (credit cards) might be secured on second hand market unless the revolving debt charged dinners or movies or similar (services) which cannot be given back.

If I have a stereo system which cost $2000 and a car which cost $20,000 some basic assumptions are probably true
1) both are secured debt even if one was purchased with a loan and one was put on a credit card. This is where I think your logic is fuzzy- even if the item is on a credit card, it still could be "secured" in some interpretations.

Secured is when the company has a legal right to take the asset in place of the debt. If you default on your credit card, VISA can't come and legally take your stereo. The bank can legally come and take your car. (What is the Difference Between Secured Debt and Unsecured Debt?)

2) Neither asset can be sold for what I paid for it. The likelihood any car can be sold for what you paid for it when you drive it off the lot is nil. This is trump card, IMO over paying high interest debt first.

Agree that it can't be sold for what you paid for it. Disagree that it affects which debt should be paid down. Cause if you owe a bank 10k @ 10% on a car - and its value falls to $1000, you still owe 10k and still get charged $1k of interest. The interest you are charged has nothing to do with whether you could sell the asset to cover the debt or not. But if you paid off 5k of the debt, you would only get charged $500 in interest - saving you $500. The faster you pay off any high interest debt, the less interest you'll pay, and the higher your net worth will go.

See I must be a nerd about this, cause I actually enjoy hearing why people do the things they do. This is interesting to me (*cough* nerd! *cough*)

3) If you then add in comparing this to a house
so a 2k stereo system on a credit card
a 20k car loan
a 200k mortgage

The house is the only one of the 3 assets which can sell for close to what you paid for it (keeping in mind there is a 6% up charge on house when you sell for realtor).

Yeah none of that matters to me. Say the stereo was at 0%, the car was at 5% and the mortgage was at 7% and you take the standard deduction. Now you have $2k in cash that you are looking to pay towards one of these debts, which would you choose? Paying off the stereo will save you $0 interest, the car will save you $100 interest and the mortgage will save you $140. Paying down the mortgage is the best option for your net worth.

The car's going down in value, and it will go down in value whether you pay more on the loan or not. If the house goes up or down, it will have nothing to do with, "how much mortgage does the seller have out on this property? oh $200k? then I'll offer more" And you don't get a discount on seller's charges by having a higher mortgage balance, so what difference does it make?

The asset and the liability are two separate things and work independently of each other.

So over a short period of time (the amount of time the financing for the stereo and car exist), its my standpoint its better to not finance the assets which depreciate. I generally make this distinction regardless of interest rate (if house is 10% and car/stereo are 1% then maybe... but generally speaking 5.9% car vs 8% house, still pay off the car first).

You can't say "regardless of interest rate" and then say "well, unless the interest rate is really low - like 1%, then maybe."

Logic would be it would cost about 15k to pay off a car, but car is only worth 13k at the time or car payoff is about 10k, but the car value is about 7k, so you lose money either way, until the car is actually paid off (then liquidating asset is cash on hand, and not paying off the liability). I did not create this logic, I read it somewhere a while back- do not finance depreciating assets, and pay off depreciating assets first- keeps the balance sheet clean if you have to liquidate.

Then would you rather have a nice looking balance sheet? or a nice looking net worth?

The way that paying extra saves you money is that you take cash - which is an asset that usually generates next to nothing so 0% income - and you use it to pay down a number of debts which cost more than 0%. You give up 0% income to save X% expenses. The higher you get X, the better off you'll be.

Same works for investments - you purchase securities from extra cash (above what's necessary for EF), converting from an asset that earns 0% to an asset that earns X%. The higher you get X, the better off you'll be.

Hence my viewpoint that it's all about interest rate maximization.

[luciyahelan]

I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone. I like this particular article It gives me an additional input on the information around the world Thanks a lot and keep going with posting such information.
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Debt

[jpg7n16]

I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone. I like this particular article It gives me an additional input on the information around the world Thanks a lot and keep going with posting such information.
================================================== =
Debt

Thanks Yeah I enjoy these discussions. What's important to you and why? What do you pay first and why? If you had $1000 extra dollars, how would you use it? How does that fit in with what I know about this or that?

I'm glad you like the discussion, and hope it helps you sort out your own priorities.

[disneysteve]

My answer pretty much boils down to 3 things:

1. Necessities
2. Savings
3. Non-necessities