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From debt repayment to retirement planning, here’s how to set financial goals

From debt repayment to retirement planning, here’s how to set financial goals

Determining the best way to ensure your financial security can seem overwhelming.

For James and Michelle Bethe, they had a decision on what to do with the $ 200,000 they had in savings. As a teacher, Michelle, 36, has a retirement pension, and James, 38, has some money in a 401 (k) plan.

For Michelle, the money is best kept in the bank in case of emergency. However, James would get rid of their car payments and pay down some of their mortgages.

“The ultimate peace of mind is to be financially free,” said James, who lives in East Brunswick, New Jersey, with his wife.

Their solution came in the form of a verdict on CNBC’s ‘Money Court’, reproduced by O’Shares ETF President Kevin O’Leary.

James and Michelle Bethe disagreed on what to do with their $ 200,000 in savings.

Source: James and Michelle Bethe

He decided that they should put $ 130,000 into their mortgage and pay back the $ 20,000 that was left on the car loan. The rest was back to savings. To start investing, he suggested that Bethes automatically start putting $ 100 a week into an index fund.

Yet everyone’s situation is different.

In general, it’s best to take a balanced approach- pay some debt while still saving, said Cathy Curtis, founder and CEO of Oakland, California-based Curtis Financial Planning.

Debt Strategies

High-interest credit cards should be the first thing you get rid of, said Curtis, a certified financial planner and member of the CNBC Financial Advisor Council.

However, she would not necessarily speed up the repayment of student loans, especially if it is a government loan. Instead, just make sure you pay the bills on time.

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Curtis generally does not like car loans as cars are a depreciating asset. Still, the interest rate has been low, so you just have to keep paying on time. If you get a bonus or have extra money, you have to pay it off.

“Prioritize paying down the car loan, but not before you save,” she said.

In general, Curtis does not recommend repaying mortgages unless you are approaching retirement, as interest rates are really low. If you do not have a low interest rate, you may want to consider refinancing.

Sorting of savings

Contribute to a 401 (k) plan or 403 (b) if it is available to you, Curtis said. It should be enough to get the employer’s match.

She then advises taking the rest of your retirement savings and putting it into a Roth IRA if your income qualifies (income limits can be found here).

You can withdraw contributions at any time without penalty, e.g. If you need a down payment for a house.

If you have a 401 (k), are not eligible for a Roth and have multiple savings goals, open an investment account, Curtis said. She recommends investing through regular implementations, known as average dollar costs, rather than lump sums.

Of course, if you can maximize your 401 (k), do it. By 2021, you can deposit up to $ 19,500 plus an additional $ 6,500 if you are 50 years or older.

If you have a secure job, build an emergency fund that covers six months of significant expenses. If that’s not safe, your savings should cover one-year bills, Curtis said.

Put it in a high-interest savings account that can give you a little more interest than a regular bank savings account, she said.

Finally, do not forget about a health savings account which is available to those with high deductible health plans. Contributions, growth and withdrawals are all tax-free. Although you can spend the money on qualified medical expenses each year, you can also let them grow into medical expenses upon retirement.

As for Bethes, O’Leary’s decision worked. After paying off part of their mortgage, they refinanced at a lower interest rate and dropped their monthly payments to $ 1,400 per month from $ 2,400. They paid the car and then continued to save, bringing their bank savings account up to $ 90,000.

Instead of opening an investment account, James started contributing again to his 401 (k) and getting a company fight.

“I am certainly extremely happy with the decision,” he said. “It honestly changed our lives.”

TUNE IN: CNBC’s “Money Court” with Kevin O’Leary airs Wednesdays at 22.00 ET.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorn.


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