My wife and I have finally been able to save some money. After buying a home, remodeling it and getting married all in one year our financial resources have been greatly depleted. A couple of months with relatively smaller expenses passed and we’ve been able to save a small yet significant amount of money.
Suddenly we’re faced with a question: Where should we put this money? What should we do with our next saved dollar?
I believe the answer lies in the truths of basic financial planning theory. In my opinion when we consider where our next dollar should go we have to examine the following hierarchy of financial “needs” (assuming your debt repayments are within your monthly budget):
Repaying expansive debt
Not all debts are bad debts, just the more expansive ones are. For example, just yesterday I wrote about the advantages a mortgage has in making us more disciplined savers (with relatively cheap interest rates).
If your outstanding loans are pricey you should definitely work towards repaying them or recycling them soon. If you’re debt repayments are already in order and within your monthly budget it is advisable to consider direct your next dollar elsewhere (while still maintaining liquidity should anything go unexpectedly).
Securing a liquid emergency fund
I recommend keeping a liquid emergency fund whole-heartedly. An emergency fund, in my opinion, should hold sufficient funding for at least 3 months with no income. Your emergency fund can also be used to reduce pricey debts gradually while using the money saved on interest to re-establish it.
Contributing more towards a secured retirement
Save early and often is the best tip in retirement planning. If you have an extra dollar better check how are you meeting your retirement goals. Postponing instant gratifications and increasing contribution to retirement plans will be well worth in the long run.
By no means am I recommending all your savings should be directed to retirement. We still need to lead a life. My recommendation is to raise our awareness towards securing our retirements.
Establishing a foundation of solid investments
Congratulations. You’ve made it past the basic foundations of your financial planning and financial living. The next step, in my opinion, is substantiating another level of solid investments. This next level should be planned in order to help us meet our goals: an apartment, education and more. The risk level and liquidity of these investments should correspond to our goals and term of investment and should definitely be on the solid side.
Building an investment portfolio
It’s the big league. Depending on your preferences you are now able to take more risks (or less) and really start enjoying your money working for you. Investing is never detached from your goals and personal status and should always reflect them. However, if you’re extra dollars are going in here you’re doing quite well. Good luck.bad debts, budget, debt, debt repayments, emergency, hierarchy of financial needs, investment, liquidity, retirement goals, spare dollar