How well you manage your money depends on the decisions that you make.
In our book Money Mastering, we explain that in addition to paying your monthly bills, the rest of your money should be allocated to the right priorities in the correct order.
Having money saved as your safety net, getting rid of debt and generally saving and growing your money through investing are all important but when you begin your money mastering journey, you can’t do them all at the same time as you will fail.
Here’s how we recommend you put your money priorities:
How to Think About Your Money Priorities
1️⃣ Emergency fund
First, you need to build your emergency fund which should be savings of 3-6 months of living expenses. This is crucial especially now in the difficult macroeconomic environment we are in with high inflation, mass layoffs, post-COVID recovery and upcoming recession.
2️⃣ High-interest debt
The second thing you must tackle is your high-interest debt which is any debt with an interest rate of 7% or higher. This is a lot of money to owe and to have to repay in addition to the actual debt amount. Considering that most savings accounts offer an interest rate of 1-2% and the average yearly return on the stock market is 7%, there’s no point in saving or investing if you have such expensive debt. It’s simple math.
3️⃣Savings and investments
Once you have your emergency fund and high-interest debt sorted, now you can focus on savings for e.g. sinking funds (vacations, shopping etc.) and investing because you can now truly put your money to work, having a safety net with your emergency fund should anything happen and without crazy expensive debt to worry about.
How do you prioritise your money?