What's the best way to prioritize your spending? Times have changed with high unemployment and uncertain economic conditions.
What was the traditional best way to invest your money no longer applies.
According to Suzy Orman in a recent interview on the Today Show, you need to change your priorities to fit the times.
Here are some tips to help you decide the best use of your money.
Do I pay down my credit cards or put money in savings? If you do not have savings equal to eight months of expenses, put your money in savings.
Pay just over the minimum on your credit cards and put the rest in your emergency fund.
Even if you feel really secure with your job it is best to have that fund.
There are too many factors at work that could cause your employer to be forced to reduce expenses.
Finding a new job in this economy is really tough so it is very important you have the reserve funds.
Do I pay down credit cards or my student loans? Student loans cannot be discharged through bankruptcy, credit card balances can.
You cannot escape paying off your student loans so again, pay the minimum on the card and pay the difference on your student loans.
Do I pay into my 401k or pay down credit cards? This depends on if your employer is matching funds.
If your employer is matching $0.
25 or $0.
50 for every dollar you put in, that's found money and you should not pass it up.
There are very few, if any, investments that are yielding 25% or better.
Make the minimum payment on the card and up your 401k investment.
If your employer does not provide matching funds, stop your contributions and start using them to pay down the credit cards.
This is investing in debt which is an excellent idea.
If your card rate is 15% that's actually your rate of return on every dollar you use to reduce your balance.
Do I pay down my credit cards or save for my children's education fund?As cold as it sounds, pay down the credit cards.
Hopefully this economic crisis will be over in a couple of years and then you can consider saving for education.
If all else fails there is still student loans and scholarships available to put your children through school.
Along the same lines, pay your 401k before you pay into an educational savings fund.
You have to be able to take care of yourself if you don't want to be a burden to your children.