# Develop Strategies to Prioritize Your Finances

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I recently posted about paying down debt vs starting an emergency fund. In that post, I proposed various scenarios when it came to paying down debt or establishing and funding an emergency fund. I’ve had several questions about how I calculated the various number in the table that was posted and I wanted to share the calculators and the way to calculate those numbers. These calculators will help you to develop strategies to prioritize your finances.

I will describe the sequence that I used to figure out take home income and taxes. Then I figured out my debt payments. After that, I looked at my different investment options and estimated my return. Finally, I put all the strategies together and that gives me the numbers I need to make an educated decision. If we do this, we can have peace of mind that the math confirms the values that we are trying to uphold as good budgeters and financial planners.

## Figure Out Take Home Pay

For the purposes of easier numbers to plug into spreadsheets and remember values, I will round numbers whenever possible.

The first thing I do is go to Taxcaster through Turbotax.

Let’s start out with a married couple.

The couple is in their late 30s.

The family income is $200,000 a year through an employer.

The estimated federal tax is about $37,000 before any deductions.

Let’s start out simple and make assumptions that the couple has two children and own a home with a $300,000 mortgage.

Let’s assume no child care credit and no education credits.

More assumptions: The couple has no state income tax. Property taxes are $8000. Mortgage interest is $11,000. I plug those into the Taxcaster calculator and come up with the federal tax.

The final federal tax is:

Now let’s calculate FICA here. These are 2016 numbers. (You can calculate maximum on your own by using the 2017 social security maximum at $127,200 and multiplying by 6.2%)

With assumptions of $200,000 and employed in a corporation where the employer pays the other half of the FICA tax, it is $10,247.

## Calculating Debt Payments

Now let’s lay out the debts:

**Credit card debt of $10,000 at 19%**

**Student loan debt of $100,000 at 6%**

**Mortgage of $300,000 at 3%**

Now let’s calculate the minimum payments on each debt.

I use this **credit card** payment calculator here:

Assume they require a 4% of the balance payment for each billing cycle. Here is the payment.

I use this **student loan** debt calculator here. I assumed a 10 year repayment period. Here is the payment.

I use this **mortgage** amortization calculator here.

I assumed a 30-year mortgage with no PMI. Here is the payment.

When those payments are done, we calculate our family expenses over the time period we want to measure. In the example from the last post, it was a six-year period from 2004 to 2009.

Remember we made $200,000.

Federal Tax was $33,000

FICA was $10000

I’ve embedded this calculator so you can download it and plug in your own numbers.

## Calculate our (Investment) “Debt Tackling” Account Return

In order to do this, you can make a number of assumptions.

You could take real stock market returns over a period of time. In the previous post example, we took the Total Stock Market return from 2004 to 2009.

In order to do that I looked up the year-end results here.

You could also go to Morningstar and type in whatever the investment was that you would have chosen. If you would have put everything in Facebook stock you can see the return you would have achieved.

You could also just assume you get an average of 3%, 4%, 5% or whatever you think is accurate.

Then use a simple compound interest calculator here for each year and the return of that year. From our example above, with leftover income at $4782 a month, this is what it would turn into with an average return of 6% for the year.

For the next year, just put the final result ($59,232) in the starting amount box and the new interest rate for the new year and the monthly contribution (leftover money).

You will eventually get to your final value over the time period you wanted to test.

## Start Changing Variables

Then start changing the different variables.

Do you want to pay credit card debt first? Look at the credit card payment schedule report and see how long it would take to pay off if you added an extra $4782 each month (hint: about 2 months).

Do you want to pay your student loans first? Add the extra monthly payment into this calculator and see how long it would take to pay them off. (hint: about 18 months).

Change things around and see what happens when you pay off a car loan.

Do you want to build up an emergency fund? Add an emergency fund box to the excel calculator I embedded above and plug in the numbers.

You can figure out how much maxing out a 401k would change things by reducing your salary by the maximum 401k contribution ($18,000) and plugging those numbers into Taxcaster.

There are literally thousands of different scenarios. Just plug in your situation and start seeing how a debt-tackling account grows, an emergency fund grows or your debt shrinks.

With a compound interest, mortgage, simple interest and tax calculators, you can figure out almost anything.

If this was as clear as mud, let me know. It’s a lot of calculators but you can figure it out by calculating:

- Salary
- Estimated taxes
- Debt Payments
- Return on Investments
- Change variables and calculate time to pay off debts

I hope this helps. Bankrate.com has a ton of helpful calculators. Take your time. Develop your plan and you will be on your way to making great decisions about your finances.

*Let me know what you think below. Do you have any other must use calculators or websites that help with your financial planning?*

I’m definitely going to have to play around with these calculators. These are awesome and much better than my loan amortization spreadsheets 🙂 Thanks for sharing!!!

Thanks Rob, I hope they help. I would make my own calculators, but so many other people have made them better than I could so I try to use the best. 🙂

Tom @ HIP

Great walk through on these calculations, Tom. I’m a fan of using excel for calculating future values, interest rate returns and payments on debt. I didn’t know about Taxcaster, so that will be helpful with tax estimates.

Thank you. Glad to be of service. Taxcaster is great for trying out different scenarios.

Tom @ HIP