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How should I prioritize my savings between enlarging my emergency fund, saving for retirement, and saving up for a down payment on a house (financial aspects of buying vs renting aside, I would prefer to own my home)?

Details:

  • I have no debt besides my credit cards (which I pay in full every month) and a car lease.
  • I already have an small emergency fund of approximately 2 months of expenses.
  • I am married with 2 small children
  • Neither my spouse nor I have access to a 401K plan right now, but this may change in the future

Edit:

It has been suggested that this question is either a duplicate of Best way to start investing, for a young person just starting their career? or Oversimplify it for me: the correct order of investing. I looked at the answers to these questions, but they don't really help:

  1. Most of the answers to the first question deal with investing strategies in and not prioritization of savings goals.
  2. Even the answers to the second question don't seem to mention saving for a down payment at all (unless you assume that saving for a down payment is a perfect equivalent of paying of a mortgage early.
  3. Most answers I find about saving priorities on this site, or on the web in general place one of the highest priorities on "401K contributions up to your match", but don't explicitly give alternative priorities for when a 401K isn't available.
lzam
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  • I recommend reading that question, or many others on this site that are linked from there, which talk about fundementals of how to decide what amounts to invest with various goals in mind. If you have a more specific question not covered there, you should ask it with reference to what you already know. There is not much that can be said from what little details you've provided, that wouldn't be better answered by one of the great answers already provided to early 'investing basics' questions. – Grade 'Eh' Bacon Jun 21 '17 at 21:23
  • In the order you listed them, and build the emergency fund to the point that it will cover ~6 months of expenses after you buy, ie bulk it up for planned expense increases ahead of time rather then in reaction to changes. – Hart CO Jun 21 '17 at 21:23
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    @Grade'Eh'Bacon - agree. OP is asking us to tell him what's most important to him and his family. Some would say save a minimum emergency fund in order get out of the lease, but a larger emergency fund with a family might be more important. – D Stanley Jun 21 '17 at 21:29
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    Whatever you do please consider getting rid of the lease. It's the most expensive way to use a car. You're effectively renting it since it almost never makes any sense to buy the car after the lease is up. Leases are usually used to rent a car you can't afford to buy. – D Stanley Jun 21 '17 at 21:30
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    Assuming you are eligible, I personally recommend putting your emergency funds into a Roth IRA (unless you are already maxing out your IRA contribution), Put the funds in a non-volatile account and choose an IRA custodian that will allow you to quickly take withdrawals (of your contributions) in case of an emergency. If you end up not ever needing the funds you can later invest it. It's a little extra work if you end up pulling the money back out but it's a tremendous win if you don't have an emergency. More info: https://money.stackexchange.com/q/80704/17718 – TTT Jun 21 '17 at 21:58
  • @DStanley I know, and would avoid it under most circumstances. In this case, I believed I had a high chance of needing to get rid of the car by the end of the lease period, and didn't want the hassle of selling a car. – lzam Jun 22 '17 at 03:09
  • @Grade'Eh'Bacon Are there any particular details that would make an answer easier? I have edited my question to explain why it isn't a duplicate of any of the questions here I have come across so far. – lzam Jun 22 '17 at 03:11
  • I suggested that this question is a duplicate of Oversimplify.... This type of question is, of course, a matter of opinion, but that question has lots of good, well-defended answers offering general guidelines. – Ben Miller Jun 22 '17 at 17:37
  • If you are looking for my opinion, applying your situation to my answer on that question, I would put saving for a house (or any other saving goals/priorities that you have) at the end of my list. Ensure that your emergency fund is where you want it, ensure that you have started putting money away for retirement (if you don't have a 401(k), then open an IRA or Roth IRA), then start saving that down payment. – Ben Miller Jun 22 '17 at 17:42

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