Prioritizing your finances,
step-by-step -- Page 2
Step 4: Fully
fund your pretax retirement savings.
15 percent of your gross household income into a retirement plan or Roth IRA if
you're eligible. If you can't afford the full 15 percent, start slowly and add
1 percent to 2 percent at a time, as you are able.
A reminder: If
you're already saving the maximum amount in your retirement fund, but still have
non-mortgage debt (Step 2) or haven't created your emergency fund (Step 3), you're
not ready for Step 4.
Financial experts emphasize that you
must take care of your current financial situation before you can plan for the
future. Cut back or eliminate your retirement contributions until you have completed
Steps 1 through 3.
And why focus on retirement before college
savings? "Millions of baby boomers are learning the hard way that they can't
afford to retire because they didn't save enough soon enough," says A. Todd
Black, a fee-only financial planner in Cumming, Ga. "If you put off saving
for retirement until education expenses are paid for, it could be too late for
you to save and still have the retirement options you were hoping for."
says Black, remember that your kids can take out loans for college. You can't
take out loans for retirement.
Step 5: Create a college fund for your kids.
Once you've established an ongoing contribution to your retirement fund, this
is the time to set up a college fund for your children -- if that's important
"I know some fabulously successful people
whose parents didn't pay for their education," says Black. "I also know
some less successful ones whose parents did, so it's not the end of the world
if you can't afford to save for college."
Step 6: Pay off your mortgage
It's finally time to burn that mortgage note! Many
financial experts suggest that their clients pay off their houses before they
retire, if possible.
Some ideas: Refinance from a 30-year
to a 15-year mortgage, arrange for additional principal to be automatically withdrawn
each month from your bank account or use windfalls such as bonuses or inheritances
to pay off large chunks of your mortgage.
7: Build wealth and enjoy your financial independence.
you're debt-free and solidly on the road to retirement, it's time to have some
fun. Buy that sports car you've always wanted, invest money so you can leave a
legacy for your grandchildren or use your financial freedom to support causes
that interest you.
It's all a matter of priorities.
Cettina is a freelance writer based in Oregon.