I commend you for your commitment to a) saving for retirement, and b) acting on your goal of setting aside six-months of savings. I would have fewer heartrending questions from distressed readers if more people followed your example.
I think you are taking all of the right actions. I have one suggested tweak or fine-tune to your plan, one thought, and one reassuring observation.
First, my suggested tweak is to temporarily stop setting aside your savings for two or three months so that you can bury the credit card debt. I suggest this because you are probably paying more than 10% APR on the credit card -- and probably a great deal more. This is in contrast to your savings account, which, given the low-interest earned in savings accounts these days, is likely earning peanuts. After you achieve debt freedom, resume your savings plan. After you reach your six-month goal, consider extending it to nine if you work in an industry with employment uncertainty.
My thought concerns the 401(k). I love them, and think it is great you are setting aside 12% of your income to your retirement. Consider splitting your 401(k) into three unequal pieces. Younger workers (say age 35 or less) should invest the largest part of their 401(k) pool in high-risk funds. Smaller pieces should be evenly split between balanced and low-risk funds. Middle-age workers should balance their 401(k) pool over all three fund types. Workers nearing retirement age should move their funds into low-risk, cash-based funds that do not fluctuate with the stock market.
Therefore, if you are a younger or middle-aged worker, be aggressive and choose overseas and small-cap funds. This is marathon and you can ignore short-term fluctuations in the stock market indexes.
My reassuring observation is this: Once you get your debt retired and your savings banked, you will feel less like your are living paycheck-to-paycheck because you will have confidence knowing you have a nice cushion to live on.
I hope this information helps you Find. Learn & Save.
Best,
Bill
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