Thursday, December 13, 2007

Income Distribution

I stumbled upon a gem comment today at

# Baba Ghanoush Says:
June 1st, 2007 at 10:55 am

In our house, the discretionary savings gets allocated in this order:

1) 100% to emergency fund (until at least 3 months expenses)
2) 100% to pay off high-interest debt
3) 401K to point of company match
4) monthly contribution to a “big ticket fund”, which is savings for occasional large expenses, like semi-annual insurance, vacations, etc.
5) Roth IRA to contribution limit
6) 401K to contribution limit
7) remainder: 50% mortgage prepay and 50% taxable index fund

I have #1 and don't have #2. I am already doing #3. The line between #1 and #4 is fuzzy. I guess any liquid asset I have over 3 months expense is automatically part of #4. I'm already doing #5.

I have not been doing #6, instead I have been putting down money for mortgage prepayment. I am still forming a plan of what to do with the leftover after #5. That post at has a lot of insightful comments that I have not gone through completely yet.

While my goal is to increase my net worth by $100K in 1.5 years, I have to balance it with long-term interest too.

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