[nradov]

Dilbert’s One Page Personal Finance List

• Make a will.

• Pay off your credit card balance.

• Get term life insurance if you have a family to support.

• Fund your company 401K to the maximum.

• Fund your IRA to the maximum.

• Buy a house if you want to live in a house and can afford it.

• Put six months’ expenses in a money market account.

• Take whatever is left over and invest it 70 percent in a stock index fund and 30 percent in a bond fund through any discount brokerage company and never touch it until retirement

• If any of this confuses you, or you have something special going on (retirement, college planning, tax issue), hire a fee-based financial planner, not one who charges you a percentage of your portfolio.

https://www.mattcutts.com/blog/scott-adams-financial-advice/

[bluGill]

401k need not be maximized - if it should depends on your age, existing savings and if you actually want to retire early, same for IRA.

You need to figure out how much savings is right for your long term plans. The 6 months expenses is the only one that I think applies to nearly everybody - even then if your doctor just gave you 2 weeks to live 6 months expenses isn't useful. Some people want to retire early - other people have discovered that a job gives them social benefits and they don't want to retire ever. Some people are willing to work longer in life so they can afford more toys now, others are willing to forego toys so they can enjoy the free time later. This is your personal choice.

[wait_a_minute]

Is that in order? I'd say having six months' expenses saved should be higher up in that list. After you've paid off all debt besides a mortgage, but before you start maxing out a 401k or IRA.

[organsnyder]

I'd put maxing out a Roth IRA ahead of saving for emergencies. You're limited to a certain amount you can contribute each year, and you can withdraw your contributed principal from a Roth with no penalty—it can effectively be your emergency fund (or part of it). Of course, long-term you definitely want a separate emergency fund to avoid needing to raid your Roth.

[wait_a_minute]

Hmmmm that could work, but I worry that if people treat their Roth IRA as their emergency budget in the event of a recession their total amount they can withdraw will be lower than their needs.

That is why keeping an emergency fund as a separate savings account at a bank makes me feel more comfortable. At most I'd put my emergency fund in a money market account to at least earn something, but the point of the emergency fund is to be liquid and available for emergencies. If there's a steep recession and all of a sudden you need to tap into your savings for 6-12 months until you find another job, you don't want to be doing that when your Roth goes down and cashing out your contributions means selling more shares than you purchased.