From paying off debts to retirement planning, this is how you set financial goals

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

For James and Michelle Bethe, when they decided what to do with the $ 200,000 they had in savings, they stood still. As a teacher, Michelle, 36, is retired retirement and James, 38, has some money in a 401 (k) plane.

For Michelle, the money is best kept in the bank for emergencies. However, James wanted to get rid of his car payments and pay down part of his mortgage.

“The ultimate peace of mind is to be financially free,” says 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, “made by O’Shares ETF Chairman Kevin O’Leary.

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

Source: James and Michelle Bethe

He decided that they would put $ 130,000 against their mortgage and pay off the $ 20,000 that remained on the car loan. The rest was left for savings. To start investing, he suggested that Bethes automatically start putting $ 100 a week into an index fund.

But everyone’s situation is different.

In general, it is best to take a balanced approach – pay off some debt while still saving, said Cathy Curtis, founder and CEO of Oakland, California-based Curtis Financial Planning.

Debt Strategies

High-interest credit cards should be the first thing you get rid of, says Curtis, a certified financial planner and member of CNBC Financial Advisor Council.

But she would not necessarily speed up the repayment of student loans, especially if it is a government loan. Instead, make sure you pay your bills on time.

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Curtis generally does not like car loans, as cars are a depreciating asset. Still, interest rates have been low, so keep paying on time. If you get a bonus or have extra money, pay it off.

“Prioritize paying down the car loan, but not before you save,” she said.

In general, Curtis does not recommend paying down mortgages, unless you are approaching retirement, as interest rates are really low. If you do not have a low interest rate, consider refinancing.

Sort savings

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

Then she recommends taking the rest of your retirement savings and depositing it in a Roth IRA, if your income is eligible (income limits can be is here).

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

If you have a 401 (k), do not qualify for a Roth and have multiple savings goals, open an investment account, Curtis said. She recommends investing through regular distributions, so-called average cost of dollars, rather than lump sums.

Of course, if you can maximize your 401 (k), do it. In 2021, you can deposit up to $ 19,500, plus an additional $ 6,500 if you are 50 years or older.

If you have a secure job, build an emergency fund that covers six months of significant expenses. If it’s not safe, your savings should cover one year’s bills, Curtis said.

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

Finally, do not forget one health savings account, which is available to those with high-deduction health plans. Grants, growth and withdrawals are all tax-free. While you can spend the money each year on qualified medical expenses, you can also let them grow for medical expenses in retirement.

As for Bethes, O’Leary’s resolution worked. After paying part of their mortgage, they refinanced at a lower interest rate and lowered their monthly payments to $ 1400 a month from $ 2400. They paid off the car and then continued to save, giving their bank account up to $ 90,000.

Instead of opening an investment account, James started contributing again to his 401 (k) and gets a corporate match.

“I am definitely extremely pleased with the decision,” he said. “It honestly changed our lives.”

TUNE IN: CNBC “Money Court“with Kevin O’Leary airs Wednesdays at 10pm ET.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorn.

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