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" One of life&amp;#039;s toughest money quandaries is how to get out of the red (debt) and build up more green (savings). You probably know firsthand just how tricky it is to achieve this: Should you really move money into an emergency fund when bills are piling up? And how can you funnel moolah into retirement accounts when you have a major balance on your credit card? Take this quiz and let me help you make the best decisions. 1. Which of these should be your priority? A. Paying off a credit card balance B. Saving for emergencies C. Both ANSWER: C With unemployment as high (and potentially long-lasting) as it is today, your emergency fund becomes a kind of insurance policy. You&amp;#039;ll need a cash cushion if you wind up out of work \u2014 especially because it&amp;#039;s harder to access credit or loans when you aren&amp;#039;t on a payroll. So take these steps: 1. Put together a plan to sock money away when you get paid (an automatic transfer to a savings account can work well). Your goal: to have at least six months of living expenses saved up \u2014 more if you&amp;#039;re self-employed or you support a family. 2. Transfer any high-interest credit card balances to a new account that allows you to lock in low or even zero interest for a generous period of time. If you have an excellent credit score (760 or above), you may qualify for 0% interest for at least a year; review your options at bankrate.com or credit.com. Paying a 0% rate instead of the average credit card rate of about 14% will save around $50 a month on a balance of $5,000, which in turn spares you $600 in interest over the year ahead. 3. Make sure you don&amp;#039;t get shop-happy with your plastic. Don&amp;#039;t charge anything you can&amp;#039;t pay off before your grace period of low or zero interest expires. Once your emergency fund is shored up, you can tackle that credit card bill. By not paying (much) interest and not adding to the balance, you will erase that debt over time without doing so at the expense of your emergency fund. 2. Which should you save for first? A. The kids&amp;#039; future (college) B. Your future (retirement) ANSWER: B Focusing on your children&amp;#039;s needs may seem loving, but if you underfund your retirement, you&amp;#039;re likely to be a burden to them in the future. Most Americans are in dire straits when it comes to retirement savings: A recent survey found that 57% of working adults have less than $25,000 stashed away. Meanwhile, health care in retirement may cost over $100,000, even with Medicare! So let&amp;#039;s say you&amp;#039;re 35 and your daughter is 10. She has eight years until she&amp;#039;ll need money for college, and you have 30 years until you retire. One hundred dollars a month invested in your retirement account, earning an average of 7%, would turn into $100,000-plus by age 65: You would earn $64,000 in investment returns alone! On the other hand, $100 a month invested in your daughter&amp;#039;s 529 college savings account could grow to only around $11,322 after eight years (with a conservative return estimate of 4% because of the shorter time frame). In this example, putting $100 a month toward college instead of your retirement would mean losing around $62,000. Still want to help out with paying for that degree? Sock away extra funds in a tax-friendly 529 account, but only after you&amp;#039;ve funded your retirement as much as possible. For more info on college planning, head to finaid.org or edvisors.com. 3. If you have a little extra money, you should: A. Pay off the mortgage early B. Save more for retirement ANSWER: B Here&amp;#039;s how to look at this scenario: Let&amp;#039;s say you reach 60 and you&amp;#039;ve saved only $100,000 for retirement but have paid off your home, which is worth $300,000. As I mentioned, your health-care costs alone could be $100,000 or more in retirement, so you could hit 70 and be out of cash but sitting on a valuable house. Would you want to sell it and move at 70? Or take out a mortgage on your home to cover the bills? Your monthly payment might be much higher then, due both to the economy and to the fact that lenders can inflate your rate when you have little or no work income. Remember, you can&amp;#039;t take your house to the supermarket to pay for groceries, so save as much as you can while you can. Consider adding a Roth or traditional IRA to any 401(k) savings. 4. Which bills should you pay first? Write checks for these three expenses right away: 1. Mortgage and property taxes Protecting the roof over your head should be your number one priority so your loan doesn&amp;#039;t end up in foreclosure. Skip tax payments, and a lien could be put on your home. Short on funds? Contact your lender ASAP to request an accommodation; ask a counselor approved by the federal Department of Housing and Urban Development (hud.gov) for help. 2. Utilities This isn&amp;#039;t about keeping cable TV, but about your home having heat, electricity, and an Internet connection, which you may need for work. Search for the Energy Savers Guide at energy.gov for ways to save. 3. Car payments Miss them, and you could lose your ride \u2014 which may ,eam you can&amp;#039;t get to work. If you can&amp;#039;t cover the amount, it&amp;#039;s time to get help from a free or low-cost credit counselor at nfcc.org. "^^<http://www.w3.org/2001/XMLSchema#string>
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