In math, we have an order of operations (inside parens first, multiplication comes before addition, etc.). There is also an order of operations in personal finance. Each person has to decide what to do first for him- or herself, but there is definitely a preferred order:

1. Get minimum payments made. Scrimp and save until you can cover all your obligations. When you have extra:

2. Get your $1000 emergency fund. You should still be covering all your obligations. Use this emergency fund only in the case of emergencies. Once you are covering your obligations and have a $1000 emergency fund in place, you should:

3. Pay down the smallest or highest-interest credit card. Pay them off one by one. Different people like to pay off credit cards in different orders, but the point is to do it. Once you have all your obligations covered, you have a $1000 emergency fund, and you’ve paid off all your credit cards, you should:

4. Get a good-sized emergency fund. This should cover 3-6 months of living expenses, depending upon how income-diverse and/or risk-taking you are. Once you have all your credit cards paid off and a good-sized emergency fund, you should:

5. Pay off all other consumer debt. This includes car loans, student loans, etc. Student loans should come last because of the benefits they have (low interest rate, etc). Once you’ve done all this, the only bill you have left every month are your utilities and your food/consumer goods you need each month. Once you’ve paid off all your consumer debt and have a good emergency fund and still have extra money left over each month, you should:

6. Invest in your 401(k) up until the employer match. Employer matches are free money. Do it. Once you’ve done this and you still have extra left over, you should:

7. Invest in an IRA. Choose Roth or Traditional according to your income expectations for retirement (if you expect a huge income in retirement, you don’t want to be taxed in retirement by taking out a traditional IRA, or vice-versa - if you expect no income in retirement, a traditional being taxed is not going to be a huge chunk. If you will have extra income in retirement, you should get a Roth. If you will not have any additional income in retirement, you should get a traditional). If, after all this, you still have money left over, you should do one of many things:

a. Save for your children’s college

b. Save up cash to purchase your next vehicle

c. Invest more money in mutual funds

d. Pay off your house

That is the traditional order to do things in (a., b., c., and d. are in good order as well). Did I miss anything?

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