While it is difficult to dictate an exact order that will be appropriate for everyone, there are some general guidelines that most agree on.
- Obtain any available employer match. Missing out on this is leaving part of your salary on the table.
- Eliminate high-interest rate (8%+) debt. This risk-free “investment” provides a guaranteed return that you will need to take significant risk to beat.
- Fund a Health Savings Account (HSA) if a High Deductible Health Plan is right for you.
- Fund all available retirement accounts. This includes 401(k)s, 403(b)s, Individual 401(k)s, profit-sharing plans, SEP-IRAs, SIMPLE IRAs, Backdoor Roth IRAs etc. Remember you may be able to have multiple 401(k)s. Fund the tax-free (Roth) ones first unless you are in your peak earnings years and don't expect to be able to max out both tax-deferred and tax-free accounts for the year.
- Consider 457b and other deferred compensation plans, if available.
- Consider a defined benefit/cash balance plan.
- Pay off moderate interest rate debt (4-8%).
- Invest in a taxable account in high expected return investments.
- Pay off low interest rate debt (<4%).
- Invest in a taxable account in low expected return investments.
