New Year’s Checklists: What Is Your Financial Priority List?

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Updated for 2017. You’ve worked hard and you have some money to put away for your future self. What should you do with your money? There is no definitive list, but each person can create their own with common components. You may also want to revisit it again every year.

You can find some examples in this Vanguard blog and see what I had down in this 2006 blog post. Here’s my current list:

  1. Invest in your 401(k) or similar plan up until any match. Company matches typically offer you 50 cents to a dollar for each dollar that you contribute yourself, up to a certain amount. Add in the tax deferral benefits, and it adds up to a great deal. Estimated annual return: 25% to 100%. Even if you are unable to anything else in this list, try to do this one as it can also serve as an “emergency” emergency fund.
  2. Pay down your high-interest debt (credit cards, personal loans, car loans). If you pay down a loan at 12% interest, that’s the same as earning a 12% return on your money and higher than the average historical stock market return. Estimated annual return: 10-20%.
  3. Create an emergency fund with at least 3 months of expenses. It can be difficult, but I’ve tried to describe the high potential value of an emergency fund. For example, a bank overdraft or late payment penalty can be much higher than 10% of the original bill. Estimated return: Varies.
  4. Fund your Traditional or Roth IRA up to the maximum allowed. You can invest in stocks or bonds at any brokerage firm, and the tax advantages let you keep more of your money. Estimated annual return: 8%. Even if you think you are ineligible due to income limits, you can contribute to a non-deductible Traditional IRA and then roll it over to a Roth (aka Backdoor Roth IRA).
  5. Continue funding your 401(k) or similar to the maximum allowed. There are both Traditional and Roth 401(k) options now, although your investment options may be limited as long as you are with that employer. Estimated annual return: 8%.
  6. Save towards a house down payment. This is another harder one to quantify. Buying a house is partially a lifestyle choice, but if you don’t move too often and pay off that mortgage, you’ll have lower expenses afterward. Estimated return: Qualify of life + imputed rent.
  7. Fully fund a Health Savings Account. If you have an eligible health insurance plan, you can use an HSA effectively as a “Healthcare Roth IRA
    where your contributions can be invested in mutual funds and grow tax-deferred for decades with tax-free withdrawals when used towards eligible health expenses.
  8. Invest money in taxable accounts. Sure you’ll have to pay taxes, but if you invest efficiently then long-term capital gains rates aren’t too bad. Estimated annual return: 6%.
  9. Pay down any other lower-interest debt (2% car loans, educational loans, mortgage debt). There are some forms of lower-interest and/or tax-deductible debt that can be lower priority, but must still be addressed. Estimated annual return: 2-6%.
  10. Save for your children’s education. You should take care of your own retirement before paying off your children’s tuition. There are many ways to fund an education, but it’s harder to get your kids to fund your retirement. 529 plans are one option if you are lucky enough to have reached this step. Estimated return: Depends.

I wasn’t sure where to put this, but you should also make sure you have adequate insurance (health, disability, and term life insurance if you have dependents). The goal of most optional insurance is to cover catastrophic events, so ideally you’ll pay a small amount and hope to never make a claim.

Amazon Prime Rewards Visa Signature Card Review: 5% Back at Amazon

primecreditChase and Amazon have rolled out the Amazon Prime Rewards Visa Signature Card, a new credit card (not store card) available only to Amazon Prime members. I’m surprised how much mainstream press coverage this card received. Highlights:

  • 5% back at Amazon.com for Amazon Prime members. If you stop your Prime membership, you’ll be downgraded to 3% back.
  • 2% Back at restaurants, gas stations, and drugstores.
  • 1% Back on all other purchases.
  • Sign-up bonus of variable amount based on each person’s account. I was offered a $70 Amazon Gift Certificate. Click on the “Apply Now” link to see your personalized offer, you’ll have time to stop the application.
  • No foreign transaction fees.
  • No annual fee.
  • Extended warranty protection. Extends the time period for the U.S. manufacturer’s warranty by an additional year, on eligible warranties of three years or less.
  • Purchase Protection. Covers your new purchases for 120 days against damage or theft up to $500 per claim and $50,000 per account.

Existing Amazon Rewards Visa Signature cardholder? If you have the original card and are an Amazon Prime subscriber, you should be “upgraded” to this new card automatically. You may see the change online first (your linked purchases will start earning 5% back instead of just 3% back) before you actually receive a new physical card.

Commentary. I recently did a Amazon Store Card review, about a retail card issued by Synchrony Bank that was only valid at Amazon.com. My overall opinion of this credit card is similar, except for the extended warranty protection. If you use gift cards to buy things at Amazon, you will forgo the extended warranty protection and purchase protection that many other credit cards offer. With this card, you will get the extended warranty protection and 5% cash back. How much is an extra year’s warranty worth? Depends on how many big-ticket items you buy at Amazon and how likely you’ll actually remember to use this benefit.

My rough rule of thumb is that a “hard” credit check can reliably net me at least $500 in value, usually from “try me! try me!” credit card incentives but also potentially from bank bonuses and higher interest. It is very rare that I shop at any specific retailer enough to get $500 in savings. For example, it would take $10,000 of Amazon purchases at 5% back to net me $500 in cash back. If the sign-up bonus gets high enough, then I may take another look.

(2% back at restaurants, gas stations, and drugstores only draws a yawn when I can get that much cash back on everything. 1% cash back on everything else… zzzz.)

For the casual Amazon shopper, 5% rotating category credit cards often have Amazon or a place that sells Amazon gift cards as an eligible category. Other cards like the American Express Blue Cash Preferred offer 6% back at grocery stores (that sell Amazon gift cards) or Chase Ink Business cards offer 5% back at office supply stores (that sell Amazon gift cards). Basically, there are other ways that I can stock up on Amazon gift cards at 5% off without having this card.

In the end, if you are a loyal Prime member that spends a lot of money at Amazon and prefer simplicity, then this card can make sense. Link it to your Amazon account, and don’t use it for anything else. You’ll then track all your Amazon spending on one card, and also get extended warranty protection and purchase protection. As with any rewards credit card, you should always pay off your bill in full as the annual interest rate on balances is significantly higher than 5%.

Wells Fargo $250 New Checking Account Bonus

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Wells Fargo has a $250 bonus offer for new checking account customers. You can open any consumer checking account except for Teen Checking. The prepaid Wells Fargo EasyPay® Card is not eligible. You must open the account from the special bonus … [Read the rest]

Alaska Airlines and Virgin America Merger: 10,000 Free Alaska Miles

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As Virgin America and Alaska Airlines have closed on their merger/acquisition, they are moving towards merging the two frequent flier programs. If you were a Virgin America Elevate member as of December 5, 2016 and they haven't found a matching … [Read the rest]

IRS Estimated Taxes Due Dates 2017

If you have significant self-employment or other income outside of your W-2 paycheck that is not subject to witholding (interest, rents, dividends, alimony), you may need to send the IRS some money before the usual tax-filing time. This is my … [Read the rest]

Disney Gift Card Discounts: 10%+ Off Your Disney Cruise or Vacation

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Update: If you have an American Express Business card, look in the Amex Offers section of your online account page for 20% off a single in-store Sam's Club purchase of $100+ (limit of to $250 back). You could use this offer a variety of ways, but … [Read the rest]

Southwest Companion Pass: Now May Be The Best Time To Qualify

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Southwest Airlines offers a unique feature called the Companion Pass, which lets you pick one person to fly free with you on both paid and award flights. If you either fly 100 qualifying one-way flights or earn 110,000 Qualifying Points in a … [Read the rest]

My Hard Things + What I’m Willing to Give Up

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As a follow-up to my post on choosing your hard things, I decided to share what I came up with. Keep in my these are MY hard things. You could have the two lists completely swapped, and that would get no judgment from me. The entire point is … [Read the rest]

PSA: Cuisinart Recalls 8 Million Food Processor Blades

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In case you missed it during the holiday rush, Cuisinart has issued a recall of over 8 million food processor blades in the US and Canada. This covers a huge chunk of their machines sold in the last 20 years, including the one in my kitchen. The … [Read the rest]

Choose Your Hard Things: You’ll Never Be Productive Enough for Everything

I was catching up on some longreads and enjoyed Why time management is ruining our lives by Oliver Burkeman of The Guardian. Here are some quick notes. Inbox Zero. I'd heard of "Inbox Zero" where you keep your e-mail inbox completely empty, but … [Read the rest]

Free Estate Planning Guide and Workbook from American Red Cross

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If one of your New Year's Resolutions is to create an estate plan for you and your loved ones, here's a good starter kit. The American Red Cross has a free Estate Planning Guide and Workbook which comes in both electronic fillable PDF form or a … [Read the rest]

Big List of Free Consumer Reports (2/2): See Your Confidential Housing, Insurance, & Employment Data

Updated and checked for 2017. Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes … [Read the rest]