1) Food
2) Water
3) Shelter (includes utilities, doesn't include niceties like cable and a hot tub)
4) Clothing
Don't go nuts on 4, it's not a carte blanche to buy those Armani suits and Haute Couture items. Prioritize socks, underwear, thermal items in cold weather, etc. Make sure you own at least one suit for formal occassions or dress. When it goes out of st7le just call it retro.
5) Medical Insurance
6) Debt
a) Credit Card
b) Loans
c) Mortgage - this requires research
7) Retirement Savings
a) 401(k)
b) Roth IRA
8) Education Savings (College)
a) Coverdell (if you qualify)
b) 529 Savings Account
9) Taxable savings
a) Muni bonds (high tax bracket)
b) Stocks, High Yield securities (low tax bracket)
10) Liquid Assets - Bank Savings
Taxable savings are tricky, since they may mix with your liquid assets. Be cautious of transaction fees in brokerage accounts, and redemption fees at mutual funds. Avoid variable annuities entirely and fixed annuities if you are under 62 years of age. Discretionary income falls into the "taxable savings" category. Anything leftover from your needs, insurance, retirement, and edcuation savings is discretionary, meaning you do not need that money to pay for something in the future.
Do not use a CD or savings account. Place the money into a brokerage account. Brokerage accounts offer a higher yield than traditional bank accounts through either state-based municipal money market accounts or regular money markets. Either way a broker will likely have a higher yield option than a bank savings account.
Try Fidelity or ING for a checking account. They offer excellent options and competitive yields, and allow multiple online investment options as well as comprehensive phone support.
Discretionary money is what you spend on a car, a trip, or that new Nintendo Wii you've been wanting. Getting to 9 and 10 is the hard part.
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