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Where Should My Next Dollar Go?

Answer 6 quick questions and I'll show you where you are in the order I work through with my own money, which lines up with what most mainstream guides suggest. It takes about a minute.

This is general education and isn't advice for your situation. The checklist follows a widely published order of priorities. It doesn't know your income, taxes, health, family or goals, and I don't recommend any specific investment here. Your answers stay in your browser, and I never see them.

1 Does your employer offer a 401(k) (or similar) match?
2 About how many months of essential expenses do you have in savings?
3 Do you carry any debt above about 10% interest?

Most credit cards, many personal loans and some private student loans.

4 Any debt between about 6% and 10% interest?

Some student, car and personal loans. Don't count a mortgage here.

5 Including any employer match, about what share of your income goes into retirement accounts?
6 Are you saving for something you'll need within about 5 years?

A home down payment, a car, a wedding, school.

Why this order?

Each step usually beats the one after it. Either the return is unusually high, or the step protects everything that comes after it.

  1. The employer match adds money to every dollar you contribute, up to the match limit. That's hard to beat anywhere else.
  2. A starter cushion of 1 to 3 months keeps a surprise bill from landing on a credit card.
  3. Debt above about 10% costs more than the stock market's long-run average return before inflation of roughly 10% a year, so paying it off is a guaranteed return at that rate.
  4. A full emergency fund of 3 to 6 months is the standard guidance. I aim for closer to 12 months, because losing a job is a lot less stressful when you know a year of bills is covered.
  5. Debt between about 6% and 10% is a close call. Paying it down early and investing can both be reasonable.
  6. Investing for the long run, often aiming for about 15% of income in retirement accounts, then beyond.

You can run your own numbers with the debt payoff vs. invest, emergency fund and compound interest calculators.