Money Priorities and How To Set Them

Money is a topic that affects all of us – whether you have too little or more than enough, money will affect your entire life. It seems experts recommend we are supposed to do a lot of things with our money. We are to be saving for retirement and the kids’ college education. We are supposed to stockpile our cash for emergency purposes. We are to have insurance coverage and still be able to pay off our debts. This is not always easy when you are living paycheck to paycheck.

So how do you prioritize your money? It is something to really consider because many people simply can not afford to do everything we are ‘supposed to do’ with our cash. Here are some tips to help you prioritize your bills and get the most out of your income:

#1 – Pay Your Bills
The basic necessities of humanity are: food, shelter, and clothing. You need to place a priority on paying the bills that meet your basic needs including utilities, mortgage/rent, and grocery bills. If you don’t have a lot of cash, you need to be sure your basic living expenses are covered before deciding how to use the rest of the cash. When budgeting for these bills, work to keep the expense down to 50% of your total income. This allows room for you to decide what is worth trimming out of your budget. For instance, if your monthly cable bill puts you over the 50% mark, you need to consider dropping service for a few months until you can catch up. Trade in a car with a high monthly payment or find a less expensive place to live. Working through a budget can help you pinpoint where you need to cut out extras.

#2 – Save Small to Start
Set a goal for savings at $500. Most experts agree that having 6-12 months worth of living expenses saved in an emergency account is ideal but even $500 is a great backup. It’s also a more reasonable goal to attain that a few grand. Add into your budget automatic deposits from your paycheck to be put into a designated account for savings each week and you’ll never miss it. As you reach your $500 goal, aim higher and continue to add cash regularly to the account. You also need to commit to adding any bonus money, tax refunds, and other windfalls to the account. This money should never be touched unless there is an emergency. On the bright side, the more you save, the more motivated you will likely become towards higher savings goals.

#3 – Eliminate Danger Debts
Credit card bills, payday loans, and other debts that will cost you big time should be taken care of as soon as possible. The creditors for these types of debts can literally change terms and charge outrageous interest if you are behind or missing payments. Pick the debt with highest interest rate and pay on it as much as you can while still paying the minimum on the other debts. Once you conquer that bill, move on to the next one until each debt is covered. If you have a large amount of dangerous debts, you may want to consider other sources of income (ie. second job) and devote all the extra cash to eliminating bad debts.

#4 – Retirement Planning
If your employer offers a retirement plan (401k, 403b), be sure to get enrolled right way. Even if you are unable to contribute your own money to the fund in the beginning, you still are essentially getting free money from your employer through their contributions. When you get your budget on track, begin to make automatic deposits to your retirement account straight from your check. You’ll enjoy both the tax advantages and the feeling of doing something good towards your financial future. As your situation improves, dedicate a higher amount to be put towards your retirement funds. The older you get, the more you’ll have to save so start planning now.