Finance

part of David A. Buser's website

General Advice Disclaimer! The information on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring a financial product.

General principles

• It's critical to create a budget and keep it up to date. Budget is needed for several calculations below.
• Keep your cash in an FDIC insured interest-bearing account that gives approx. prime minus 2%. Check out Bankrate.com for current rates.
• Always enable divident reinvestment (also known as DRIP) on any investment that offers it.

Specific goals

1. Put at least 5% of your salary into your retirement savings
   • You should contribute at least enough to get the full employer match.
   • If your employer does NOT match, you should consider alternative investments. For example, a traditional IRA gives you more investment options than your 401(k) is likely to offer.
2. Liquid cash to cover 3 months of survival
   • Need to have enough cash to cover any expense that can't be covered a rotating credit account (e.g., credit card).
   • Ensure your cash + your credit line is enough to cover three months of living expenses.
   • When calculating three months, assume that lifestyle will not change. Lifestyle can be changed at time of crisis to stretch survival window.
3. Zero balance on all rotating credit accounts
   • Pay off the highest-interest accounts first. All things being equal, pay off the smaller balances first.
4. Liquid cash to cover 3 months of all expenses
   • The goal here is to cover all expenses without resorting to rotating credit accounts.
5. Max out your Roth IRA
   • Consult tax code to determine the current maximum. Note that there may be an income limit!
6. No debt that is not tax deductible or profit-generating
   • Pay off the the most expensive loans first. Take into account things like full-coverage insurance (in the case of vehicles), interest rate. All things being equal, pay off the smaller balances first.
   • Consult the tax code to determine which loans are tax-deductible.
   • At this point, even though your monthly expenses will likely be falling, you should not reduce your rainy-day fund. You'll likely need all of it for the next goal!
7. Liquid cash to cover 6 months of all expenses
   • Sabbaticals, temporary retirement, etc. are outside scope of this model.
8. Max out your 401(k)
   • Put in the maximum amount that is tax-deductible.
9. No debt that is not profit-generating
   • Note that shorting stocks doesn't fall under this category!