What Should My Money Priorities Be?
For people that are not independently wealthy, prioritizing their spending is a must. There are many different things that we all desire to spend money on, but most of us do not have the money to buy everything that we want so we have to make choices about what to spend money on. Most people will prefer to make their money priorities in the following order.
Basic Living Expenses
Your basic living expenses include your rent or mortgage payment, your car payment, utilities, child care expenses, groceries, and minimum payments required by creditors. Paying these expenses first will save you a great deal of trouble in the long run because these are the expenses that could cause you the most trouble if they are missed. No one wants their home to go into foreclosure, be evicted from their apartment, or have their vehicle repossessed.
Emergency Savings
It is important to have some emergency savings on hand to take care of any unexpected financial expenses that may occur. Not having enough savings to handle financial emergencies is the number one reason for people falling into unmanageable debt that is virtually impossible to get out of. A financial cushion of at least $500 is recommended by most financial experts.
Retirement Savings
Saving for retirement should be high on your list of financial priorities because there is a limited amount of time available for contributing to your retirement. Every year that goes by without putting money into a retirement account reduces the funds that you will have for retirement by a significant amount and there is no way to recoup the interest and employer matching funds that you miss by not contributing to a retirement plan. At least 10% of your income should be put towards retirement savings.
High Interest Debt
High interest debt is any type of debt with an interest rate over 10%. This typically includes credit card balances, payday loans, and pawnshop loans. Paying off these debts quickly can save you hundreds of dollars in interest payments each year and free up more of your take home income for expenses that benefit you, not the lending institution.
Non-essential Expenses
Non-essential expenses include anything additional that you would like to spend your money on. Entertainment, dining out, and new clothing from a shopping mall or retail store are all considered to be non-essential expenses because you do not have to have them to maintain your current quality of life. After you have taken care of all of your other financial priorities, then you can use part of the money that is left over for your non-essential purchases.
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