Invest 15 % of your household income into Roth IRA’s and pre tax retirement as a way to begin the investment portfolio.  If you invest more than that you won’t have enough to complete the next two steps.  Many people don’t make this investment because they want their cash to go towards college or to pay off the house but your kids college fund won’t feed you at retirement and what good is a paid off house you have to sell because you have nothing else to live on?

College savings plans are often the most common goals among parents many of whom didn’t go to college themselves, so start with a plan and know how much you will need.  You need to calculate what you need to save per month to hit your goal with 12% interest, that way with 4% inflation you are ahead of the curve by 8%.  Never save for college with insurance, savings bonds, zero coupon bonds or any type of prepaid college because those accounts average interest rates so low that you won’t ever earn enough.

The most recommended funds are Education Savings Accounts and 529 plans because of their safety and return.

Paying off your home can be done and you will use all the left over extra money to go into the mortgage.  If you are asking yourself where all this extra money is coming from you should already be out of debt with your small emergency funds in hand and only have fixed expenses, home, utilities, food, gas etc.  So anything you can do to lower those will help your financial goals.  So if you make $55,000 a year you take home about $3,300 per month.  If you are debt free then $900 should go to retirement accounts, leaving you $2,400 for expenses and mortgage.  If you can’t take $2,400 and pay all your expenses including the mortgage and still have $500 left over than you missed a step or your house is too big.  If retirement is right around the corner than consider or even purchase structured settlement.

Saving money is a life strategy and if you aren’t on the boat because you want to keep up with the Jones than you will deserve whatever you get in the end.

First Step is to get an emergency fund of at least $1,000.  This is just for those unexpected things that pop up when we aren’t expecting them.  Job loss, an oops pregnancy, you blow a few tires driving home from work, the list continues.  This will help you manage the unexpected without traveling further into debt which will allow you to stay on top of the debt you have now.

Second Step is the pay off debt waterfall.  Make a list of all the debts you have minus the house payment.  Put them in order from smallest to largest and start with the smallest.  Pay no mind to interest rates simply amounts of debt.  The reason is because paying debt is a mind game and you need some quick marks in the ‘w’ column.  Plus once the little guys are gone you can make larger and larger dents in the big stuff.

After you are done with the first two steps and only AFTER, you will be like the great Lakers teams of the past, great momentum, and chemistry in your finances, so it’s time for a bigger goal; saving anywhere between three to six months worth of expenses in a separate account.  This money is not an investment and shouldn’t be treated as such, it simply acts as a barrier between you and life.  If you need to take an extra job working as a pizza delivery man to make this happen than do it, you can easily make $5,000 in six months delivering pizza part time.  It will suck but what would suck worse is losing your current job for 6 months and losing your house.

So at this point you should be debt free, so if that takes 6 months of following the above steps or 6 years you shouldn’t be investing money unless you aren’t losing it in debt interest.  This is where you build the wealth with investment.  Make sure you consult a financial planner before making any big steps with your new financial attitude and make sure you get a high interest savings account to earn interest on your emergency funds.