I came across Dave Ramsey’s basic plan for managing your money. I think he calls this the money pyramid and the idea is to move through this list by completing them in this order:
1.] Build a $1,000 emergency fund that is always accessible for life’s little unknown needs.
2.] Pay off your non-mortgage debts starting with the smallest loan balance first. Then, as each loan is paid off, apply the extra payment to the next loan to be paid so that you can accelerate its payoff.
3.] Build a savings fund equal to 3 to 6 month’s worth of living expenses as a buffer against job loss. The number of months your cushion fund should be is based on your job security, and whether there is more than one job-holder in the household.
4.] Save 15% for retirement. Roth IRA is best vehicle because it provides future tax-free withdrawals. The 401k up to the match level is next best.
5.] Save for your kids’ college. This one is huge and you should start as early as you can!
6.] Pay off your house ASAP.
7.] Give and save any excess equally.