I went over understanding your spending and also free budgeting tools. Once you start managing your money better, you should be spending less than you earn. Or maybe you have come across a lump sum of money somehow. Now what do you do with the money? Although everyone’s situation is different, I think that a good discussion can evolve from this.
Here’s a list of possibilities:
- Invest in your 401(k), if you have one, up until the match.
- Pay down your high-interest credit card debt.
- Create an emergency fund with at least 2 months.
- Fully fund your Roth IRA.
- Make sure you have adequate insurance (health, disability and life insurance if you have dependents).
- Pay down any other installment loans at higher interest rates than you could get at the bank (car loans, educational loans, etc.)
- Save towards a house down payment.
- Continue to fund your 401(k) to the max.
- Pay down your mortgage.
- Invest money in taxable accounts.
- Save for your children’s education.
I put it in a rough order of what I think is a good order of things. I know many people are split over paying down credit card debt vs. creating an emergency fund. Although I’m not a debt reduction expert, I think that you should just pay down your credit card debt, as you save more money that way. In addition, as you pay your debt down your credit score will improve. If an emergency happens, just go back on the cards.
Of course, some people think funding a Roth is more important than either one. That tax-free growth is very precious, you know. See? It’s hard. What do you think?
If you want to make it short, you could express your opinion like this – “My order would be 1,4,2,3,7,5.”, adding in supporting information as you see fit.