The money hierarchy: How to prioritize multiple financial goals

From 401(k)s to credit cards, here’s how to know where your money goes first.

Transcript

00:00If you're looking at it by the money, if you're looking at it mathematically, you are looking for

00:06the greatest return on your money. That's how you decide where to put the next dollar. So

00:13top of the list, you put the money in the 401k to get the match, because if you're getting 50

00:19cents on the dollar, that is the best return that you're ever going to get. Next level,

00:25the interest rate that you pay on a debt is equal to the return on your money. So if you've got high

00:33interest rate credit card debt, charging you 25%, 29%, that comes second, because that's a

00:39guaranteed 25% on your money. From there, you move to other taxable, or from there, you move to other

00:51tax advantaged accounts that you have access to. So we're talking about your 401ks, your IRAs,

01:00your HSAs, maybe your 529s. And from there, you sort of look at the other returns on your money,

01:07you got a very, very low rate on your mortgage, then you shouldn't be necessarily thinking about

01:13prepaying that mortgage. But it's okay at that point to think about putting some money in a

01:19discretionary investment portfolio where you're not getting any tax advantages. The other way to

01:26look at the question is emotionally. If you have a very, very big goal that you are striving to reach

01:35for, let's say you are trying to build an emergency cushion, but you've got some credit card debt that you

01:42also have to wipe out. Yes, you're going to get the bigger bang for your buck by wiping out the credit

01:50card debt. But the emergency cushion is your insurance policy against future credit card debt.

01:56So in that case, you want to divide and conquer, split the difference.

01:59So in that case, we do not .

02:06So in that case,

02:07let's study for salesmen.

02:09We did not make a huge difference.

02:12I think it worked well together.

02:14But, whilst we have a customer, flip the money around,

02:17we can also do that.

02:18Estaagem is something that we prevented out of the audience.

02:21So we might .

02:22So cute.