Priorities: What To Do With Your Money First

As long as there has been money, there have been money gurus. There have also been those who’ve created wealth from seemingly nothing. Even more common are people who are just plain smart with their money, and though they may not be rich per se, created enough financial stability for themselves that they never really had to struggle again.

In our modern age of increasing costs of living no matter where you go, how do these people create such financial stability? What is their secret?

In a word: priorities.

Now, I don’t just mean prioritizing saving money over things like travel and recreation and hobbies. No, I mean properly prioritizing where and how you use your money to essentially buy yourself back security and a bright future.

Just about all of those who have come before you, who have built their own financial security no matter what their income is, have done so by using their money (after necessities) in this order of importance, more or less:

1. Pay down debt

This should always be the first thing you do with your money after you’ve paid for the basics of life every month. The reason why paying down your debts is so important is because debt costs you money. Most of your debts are going to charge interest on what you owe, so the lower you get those debts, the more money you have to move on to the next priority.

2. Save an emergency fund

Putting money aside for an emergency is a huge priority because any number of things can happen that can put us into more debt. A medical emergency could rack up prescription costs, a car accident could end in a huge repair bill or even the need to purchase a new vehicle. Even regular car repairs could put us right back in debt. Saving for such occasions prevents the need to use credit and to go into more debt for which we’re charged more interest.

3. Save for retirement

Use your income after expenses to save as much as you can for retirement. Make sure you’re maxing out employer-matched contributions to your retirement plans and saving even more on top of that. A recent stat released by the Broadbent Institute suggests less than 20% of Canadians have enough saved for retirement. So, if you want a relatively stress-free and easy retirement, you have to put in the work now.

4. Invest

Once you have enough saved in your retirement savings to invest, it’s time to get your money working for you. You can, of course, have it sitting in a high-interest savings account, or you can up the ante and make a few well thought out investments. For decisions like this, it is always best to seek the advice of professional advisors. Just make sure you do your research on them, first. You can find our guide to picking the best financial planner for you here.

If you follow this order of priority, you’re going to have your money growing and your financial situation settling nicely into security.

Do you prioritize your money? Let us know in the comments!