4. Take advantage of free money at work by contributing to your retirement plan up to the amount your company matches. This is slightly controversial if you are in a deep debt hole, in which case you should skip this step for now. But if your debt is manageable, meaning you have a clear plan to pay it off reasonably soon, take advantage of employer matching in your 401(k) or other retirement plan if it's available. Beyond the amount matched, additional contributions take a lower priority.
5. Fund a Roth IRA. A Roth IRA, funded in your twenties or thirties, is an incredible deal. You'll get 30+ years of compound growth, then get to take that money out tax-free! Roths can also double as college savings accounts, or even last-resort emergency savings vehicles. Because they are so potent yet flexible, you should make a serious effort to start funneling money into one as soon as you get your debt under control and emergency savings up to a reasonable level.
5. Choose your investing strategy. Whether you're investing at work or in a Roth IRA, you need a clearly-defined strategy. Sound Mind Investing offers two primary strategies to follow: Just-the-Basics, and Upgrading. Both are founded on core principles that should be a part of any investing plan, and each can be adapted to your situation.
Once you get your long-term strategy up and running, continue to follow it no matter what the markets may be doing. In other words, don't let current events (and the emotions surrounding them) interrupt your monthly contributions.
6. Start a college savings account. If you already have a child, the clock is ticking on their education saving. There is definitely a right way and a wrong way to do this, so educate yourself. It's easier than it seems: use a Roth IRA, Section 529 plan and/or Coverdell Education Account (formerly known as Ed IRAs). Avoid the old tools you've heard about: EE bonds, custodial accounts, and so on. And don't buy into the idea that you need to save a gazillion dollars for college either. Worst case, there will likely be loans or part-time jobs available to make sure Junior can still go to college. Don't be paralyzed by the huge numbers you read about; just start saving what you can.
The Middle-Age Couple
As bittersweet as having the kids leave home may be, for most couples it marks a financial turning point from peak spending years to peak saving years. Coinciding with the decline in child-related expenses are the highest earning years for most workers, and in some rare cases, paying off the mortgage. At any rate, there's probably more surplus money available now than ever before, and it's a good thing. The day-to-day expenses of child-rearing have likely left you feeling a little behind regarding your retirement plan. It's catch-up time now. Your priority list includes:
1. Revise your budget to reflect your new level of income and expenses. This budget revision should be an annual event anyway, but I'll include it in case you haven't adjusted your budget in a while. Take a new look at your short and medium term goals as well. It's getting down to crunch time, so if you're serious about meeting those goals, you don't have as much of a time cushion as you once did. Use that as motivation rather than letting it discourage you.
2. Take a financial inventory of your household. What debt do you have outstanding? What needs are coming up-additional school payments, cars that need replacing, home repairs you've put off? At this stage of life, debt should be pared back to bare minimums. If you haven't already done so, pay off those credit card balances, car loans, and other consumer debts. You likely have the cash flow now that you can eliminate or reduce interest expense on big-ticket items, like car purchases, through advance planning and saving. If it's not there yet, build your emergency saving account balance up to where it should be.
