A lot of money advice starts making sense once you realise that there's a timeline to slot it into.
There can be different priorities for your money at different times, and ticking one off the beginning of the list can make the ones after much easier.
So here's a timeline of what to prioritise at different times. Just remember that we're all different, and you can always shuffle the order to fit your own needs.
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Decide what's valuable in your life, and what you want to spend on
The first thing is to think about what matters to you, and what brings value to your life.
Money is just a tool, so what do you want to use it for?
One way you can do this is by keeping a money diary, and noting down all spending, as well as whether you needed to spend it, or whether it made you happy.
Then create a budget that prioritises the needs and happiness spending, and cuts the rest.
You can only start investing, paying off debt, or saving, once you've found some spare cash. So creating a budget that cuts out mindless spending, but keeps what actually makes you happy, is key.
Build up an emergency savings fund
When you're first building up a savings account, we're starting small (ish).
$1000 to save you from an unexpected car breakdown, or a trip to the vet, gives you some much needed breathing space while you get the rest of your money sorted out.
If you can put aside $20 a week you'll build this up in less than a year, and it will save you a lot of heartache when something goes wrong.
As 2020 has shown us, it's a matter of when, not if, things go wrong. Make sure you've given yourself the capability to get through it.
Pay off debt
Things like credit cards, car loans, or payday loans are "consumer debt", and will only drag you backwards.
You're paying for things you've bought, but you're paying over the odds for them, thanks to the extra interest and fees from the debt. You're basically taking more money from your future self, and giving it to a credit company.
If you're already in debt, don't panic.
Time is money, and the faster you can pay it off, the less you'll pay overall. Two techniques can help you here.
Avalanche, where you pick the debt with the highest interest rate, and put all of your extra money on it until it's paid off.
This will save you the most money overall.
Or snowball, where you pick the smallest debt, and put all of your extra money on it until it's paid off.
This is great for motivation, as it gives you a quick win to boost your confidence.
Build up bigger emergency savings
Okay, you've got the debt millstone off your neck, so you're no longer being pulled backwards. Now is a good time to build some stability, with a bigger pot of emergency savings.
Having cash on hand is different from investments, but just as important.
Cash savings that are quick to access save you from the worst impacts of losing your job, having an unusual medical problem, or any other fun problem life can throw at you.
The general rule of thumb is to have three months of your core living costs on hand, although some people prefer the extra safety of six months.
Go through your accounts, work out how much you spend in a month keeping a roof over your head, and food on the table.
Then decide how long you would like to be able to cover if you lost your job, and start saving towards that amount.
Start building your wealth
Once you've got that stable base sorted, you're ready for more ambitious goals like investing or saving for a house.
House prices are expensive right now, so which one of these you choose is going to depend on your goals and your lifestyle.
Saving a home deposit or starting to invest in shares will both be very good for your long-term future, and are ways to start building true wealth and financial independence.
But you do need the other areas of your financial life to be stable before you start on them.
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