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Okay, I'm really enjoying learning more about how to manage my finances...but I am a bit overwhelmed. Maybe some of you more experienced Fools can help me.

After years of struggling, my wife and I have paid off all our consumer debt. We're in our mid 30's, with an 11 year old son. I work (she doesn't) and make about $80K per year. We rent our home, and the only other payment we have is our car lease (2 years to go). We have $2,500 in a passbook savings acount.

I have not yet started contributing to my company's 401(k). Here's my puzzle:

What do we do first? Do we save up 6 months of living expenses as an emergency fund? Or save the down payment for a house? Or save for our kid's college education? Or invest for retirement?

I just can't seem to sort out what needs to come first, and why. It seems there are lots of good reasons to put ANY of them first. Then...what comes next, and what after that?

Any Foolish input would be greatly appreciated. I have screwed up enough...I'd like to get it right this time.

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I've read your post here and on the house board, and I think you just need to play it cool. All of the priorities you state are important, and in the final analysis it's up to you to determine which ones to pursue in what order. I'm also just starting out and facing a myriad of choices, and it certainly seems daunting. A house is important to me, but the future tuition payments and retirement also weigh heavily. My only advice is to keep your debts low, and take advantage of the tax structure to pursue your goals--mortgage deduction on house, education IRA for tuition, 401k, 403b, or IRA/Roth IRA for your retirement. The choices are daunting, and it's easy to get hung up on the specifics--formulas to determine this, that or the other. Remember that the goal is financial security. There are many ways to get there, and while some of these may be Wise, there are many others that are Foolish.

You might like to take a look at the Consumer Reports Money Book, which covers a lot of topics related to investment planning, insurance and home ownership. The advice is pretty sage (not Wise), and it may give you some peace of mind.

Hope this helps.
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You've taken a good first step by recognizing you need to take action. Unfortunately, there are no direct answers. Your exact situation is unique; what works for me probably won't work for you. It's up to you *and_your_family* to identify your goals, establish your priorities and figure out how to make them happen.

Looking at it strictly from a timeline point of view, your 11 year old is 7 years away from college and going out into the world. How long will it take to save for a house? Will you need it after he's done with school? Again, it's a matter of priorities: If you've got a roof over your head, how important is it to you that you own it, rather than rent it?

I'd start with the emergency fund. I'm not trying to scare you, but what happens if you're in a car accident and can't work? Even if your employer offers disability insurance, there's generally a 30 day, if not 60 or 90 day, waiting period before payments start. And those payments are typically only 60% of your salary.

And if your 11 year old son is anything like the 11 year old boys in our neighborhood, if your not on a first name basis with the emergency room staff, you may be soon. Boys will be boys, and even just a basic broken arm will put a pretty big dent in that savings account.

As to how to fund that emergency account, you've got to ask yourself where that 80K a year is going? Wherever it goes, however it's spent, how do those actual expenditures compare to your goals and priorities?

Take a good luck, and let us know what you see. Lots of us have gone through the same thing. Good Luck


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First, it sounds like you haven't screwed up at all if you have paid off any credit card debt and don't have any long term debts eating away at your income - Congratulations - very Foolish!

Have you identified where your money is going? Where is the money that you used to pay the credit card companies going? Do you have any idea where your paycheck gets spent?

Max out your 401K - your using someone else's money, and if they contribute even 25% in matching funds, your making a killing. The value of compound interest cannot be overstated! If you visit some of the other boards - Family Fool, Foolish Four etc. you will find suggestions for beating the pants off of the market and turning your 401K into a pretty comfy nest egg.

Don't panic over not having a 3-6 month emergency fund - just make sure that you are adequately insured against that unlikely debilitating emergency.

Teach your child the values of hard work and education and he will help put himself through school. There are Education IRA's and UTMA/UGMA accounts that can be used to fund his education - again visit the Family Fool boards for more discussion on this subject.

Good Luck! and Fool On
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<<What do we do first? Do we save up 6 months of living expenses as an emergency fund? Or save the down payment for a house? Or save for our kid's college education? Or invest for retirement?>>

I would start contributing to the 401(K) right away, it's too good of a deal to pass up. I'd make the minimum contribution that gets the maximum employer contribution. For example if you employer matches a 4% contribution of yours with 2%, make the 4% contribution. It's like a 2% pay raise. After that, I'd accumulate as much cash as possible for an emergency fund and buying the house. I would consider buying a house more important than saving for college, since that is where you have to live, and rentals aren't much fun. Also, you get no equity or tax advantage with a rental.

After getting in the house, I'd start investing for more long term (outside of the 401(K)

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