From paying down debt to planning for retirement, here’s how to set financial goals

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

For James and Michelle Bethe, deciding what to do with the $ 200,000 in savings has stalled them. As a teacher, Michelle, 36, has a retirement pension and James, 38, has money in a 401 (k) plan.

For Michelle, it’s best to keep the money in the bank in an emergency. James, however, wanted to get rid of their car payments and pay off part of their mortgage.

“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”, handed down by O’Leary, O’Leary Chairman of O’Shares ETF.

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

Source: James and Michelle Bethe

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

However, everyone’s situation is different.

In general, it’s best to take a balanced approach – paying off some debt while saving, said Cathy Curtis, founder and CEO of Curtis Financial Planning, a company based in Oakland, Calif.

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, it would not necessarily speed up the repayment of student loans, especially if they are government loans. Instead, just make sure you pay the bills on time.

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Curtis generally dislikes auto loans because automobiles are a depreciating asset. Still, interest rates have been low, so just keep making payments on time. If you get a bonus or have extra money, pay it back.

“Prioritize paying off the car loan, but not before you’ve saved up,” she said.

In general, Curtis does not recommend paying off mortgages unless you are nearing retirement because interest rates are so low. If you don’t have a low rate, consider refinancing.

Sort savings

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

Then she advises taking the rest of your retirement savings allowance and putting it in a Roth IRA, if your income qualifies (income limits can be found here).

You can withdraw contributions without penalty at any time, just like you need a down payment for a house.

If you have a 401 (k), don’t qualify for a Roth, and have multiple savings goals, open an investment account, Curtis said. She recommends investing through regular deployments, known as cost averaging, rather than a lump sum.

Of course, if you can maximize your 401 (k), then do so. In 2021, you can contribute up to $ 19,500, plus an additional $ 6,500 if you’re 50 or older.

If you have a stable job, set up an emergency fund that will cover six months of essential expenses. If it’s not sure, your savings should cover a year of bills, Curtis said.

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

Finally, don’t forget a health savings account, which is available for those with high deductible health plans. Contributions, growth and withdrawals are all tax free. While you can spend the money each year on qualifying medical expenses, you can also let it grow for medical expenses in retirement.

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

Instead of opening an investment account, James has gone back to contributing to his 401 (k) and gets a match with the company.

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

TO AGREE: CNBC’s “Money Court” starring Kevin O’Leary airs Wednesdays at 10 p.m. ET.

SUBSCRIBE: Money 101 is an 8-Week Financial Freedom Learning Course, delivered weekly to your inbox.

Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.

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