Financial Priorities to Keep You On Track

Here is how I think folks should prioritize their financial matters:

1) Term life insurance. If you have anyone depending on you as their financial provider and you do not already have a big enough nest egg to provide for them after you're gone, you need to create a nest egg that will fund those needs.

2) Disability insurance. If you need to work for a living, presumably you'd still have those bills to pay even if you are hurt and can't work. Long-term disability coverage is very important, but also look at short-term and "gap"/"supplemental" coverage.

3) Emergency Reserves. Everyone who needs to work for a living should have at least three-months, and preferably more, of necessary living expenses in savings. You can also "invest" the money, but be sure to use very conservative investments that are readily accessible without penalty.

4) Pay-down "bad" debts. Credit card, personal loans, and loans or in-use credit lines against the equity in your home are on the agenda here. If you have them, you're probably spending more than you should for normal living expenses (so fix your budget if you can, and these are debts that usually charge high rates. A fixed-rate mortgage you can afford, a reasonable car payment, and student loans that are being paid back on schedule, are definitely debts, but they can be treated like living expenses rather than unnecessary burdens.

5) Retirement savings. Now we start investing. Start with contributing the minimum necessary to your retirement plan at work to earn the maximum "company match", if offered (no sense leaving "free money" on the table). Then max-out a Roth IRA ($5k), if you're eligible. Then top-off the plan at work, up to the $16,500 federally-mandated maximum tax-deductible contribution. If you earn enough to put away more than that $21,500, great! Call me and I'll show you what you can do...

6) Other high priorities. Saving for your children's education, contributing to charities, retiring early, buying a second home or a fancy car or a boat... this gets personal. I won't presume to tell anyone how to prioritize in this area, but let's just say "there's no work-study or student loans for retirement." This is where you might sock-away more money in your brokerage account. You can use it to invest in speculative stocks you think have "home run potential". Or you might use a variable annuity to provide a level of safety for that chunk of your portfolio. Lots to consider here.

If you have a grip on this already and also know how to invest your portfolio effectively with the best balance of risk and reward using the best available money managers and/or mutual funds, you should be fine on your own.

If you do not possess the knowledge to prioritize your financial life and to invest your money... or if you do not have time to act on the knowledge you may possess... or you do not have the wherewithal to stay on top of it... you should hire a financial advisor.