Singletary: Readers ask ‘What would Michelle do?’

Next, organize your cards from the lowest to the highest balance. So at the top of the list should be the card with $200.

Starting with the smallest balance means getting rid of a debt fast. In my experience, people typically get super excited when they see such quick progress. This results in their becoming aggressive in getting rid of the rest of their debt.

And no, no, no, don’t take money out of your 401(k). Don’t compound one mistake (letting your credit-card debt get to $13,000) with another (robbing your retirement account).

My husband and I are in our late 50s with a six-month emergency fund and a life-happens fund. We max out my husband’s retirement (23 percent of his salary), and anytime I run a retirement calculator, it says we’re on target. We do an annual $2,500 Roth contribution. Our accountant says I can also either put $2,100 toward a SEP-IRA (I am self-employed) or we can shave $700 off our tax bill. Our feeling is that the $700 won’t be missed from our savings, but the $2,100 could work harder in a SEP-IRA. It’s just hard to not be tempted to hold onto money, when we can. WWMD?

A SEP-IRA is a tax-advantaged retirement account for business owners and their employees, or for self-employed individuals. The “SEP” part stands for “Simplified Employee Pension.” Contributions made to a SEP account are tax-deductible and, like money in a 401(k), investments grow tax-deferred. Distributions are taxed as income.

For self-employed individuals, there is always this conundrum at tax time. The amount you need to fund an SEP can lower your tax bill, but then you have to move money — more than the tax savings — into a retirement account with restrictions on withdrawals.

But, over time, this money has the potential to grow and thus help fund your retirement — even taking into consideration that you have to pay taxes on your distributions. I would go with putting the $2,100 in the SEP-IRA. Because, as the reader points out, that’s more money to work for you in the long term.

What is the right amount to allocate to discretionary/fun spending? My husband and I are 29, make $250,000, max out our 401(k)s and IRAs, have fully funded emergency/life-happens funds, no consumer debt and we aggressively pay on our mortgage. We allocate $1,500 per month to discretionary expenses. Sometimes I think we should spend more but feel guilty moving money away from the mortgage toward fun. What would Michelle do?

Retirement savings on pace? Check. Got money saved for life’s economic emergencies? Check. No consumer debt? Check. On track to pay off your mortgage before you retire? Check.

When you can check off these important financial moves, you’ve got a good balance of financial responsibility with fun.

Reasonable amount of money allocated to enjoy your hard work? Check.