Figuring out how to prioritize the various things you could do with your money is one of the key quandaries of individual financial planning. Should you use extra money to pay off your car loan, boost college savings for your toddler or finally take that trip to Australia? There are countless options, depending on your individual values and goals. But before working toward any of those goals, there are four aspects of your finances that should be in place, no exceptions:
1. Pay your bills on time every time. It seems simple, right? Yet so many people don’t seem to get this one, even those who have plenty of money to spare. There is no quicker way to mess up your credit or senselessly lose money to late fees than to pay your bills late, even once. Whether it’s setting up your bills on auto-payment or paying your bills as soon as you get them, find a way that works for you to make sure this happens with every bill, every month.
2. Build a cash cushion right away. If you don’t already have three to six months’ worth of expenses tucked away, today is the day to start. Set a goal of $1,000 to start.
I know what it’s like to live paycheck to paycheck and feel like money is tight all the time. It’s exhausting. I also know that having even just a tiny bit tucked away is a huge relief and can actually open you up to even more financial abundance.
You can find a few dollars from each paycheck to start saving. I started with just $25 per paycheck back when I was drowning in debt. Having a little cushion allowed me to stay on my debt reduction plan even when unexpected things came up. Try it today and feel the relief right away.
3. If you have credit card debt, stop using cards until it’s gone. This is the hardest one for people to accept, especially those who feel like every month there is a cash shortfall. You might have the best of intentions when you whip out that card for just one or two purchases every month (“I’ll just tack these new charges on to what I’m already paying this month”), but they are rarely carried out. Believe me, I know. The ONLY WAY to get out of credit card debt is to stop using credit cards…period.
4. Get the match. If your employer offers a match in your 401(k) plan and you’re not contributing enough to receive the full amount, you’re basically saying, “Sure, you can pay me less than what we agreed to.” Your employee benefits are part of your compensation and the 401(k) match is FREE MONEY that is definitely factored in when your employer decides how much to pay you for coming to work every day. Get every penny that you’re working for. Your future self will thank you.
Once you have a plan in place to achieve all four of these, then we can talk about things like saving for a down payment or college education or paying down other debts. Use these ground rules to prioritize your dollars next time you have a windfall, get a raise or even find a way to cut back on some expenses. My personal mission is to help everyone find that perfect financial place where they feel like they are making big life choices for every reason except money and these ground rules will help get you there.