Money can stress me out—and it has likely stressed you out to some extent, too.
I really didn’t learn to be financially responsible until over the last few years. I’m very fortunate to have been raised in an upper-middle-class family, where providing for our education was important to my parents (read: no student debt, thank goodness), and where my parents would kindly bail me out if I were in any financial troubles (read: when I racked up a bit of credit card debt as a young adult). But that also meant that I just didn’t gain experience managing my own finances. The one college class I took on the subject, Family Finance, didn’t even seem to apply to me—a poor, single college student. I didn’t need information on how or where to invest my money (WHAT MONEY??!). I needed to know that I had the potential to earn, save, and spend my money wisely, and how to do all of that from the ground up.
A couple of years ago I took a Personal Finance class in my community and suddenly it clicked. While I still don’t have everything figured out, the most important thing I’ve put into practice is where I put my money when I earn it, and in what order I put it there. Whether you are poor or rich, single or in a committed money-sharing relationship, this is my favorite finance principle right now.
Photo by Kelly Sikkema on Unsplash
When I receive a paycheck, I distribute my money in the following order (this order is also suggested by various financial professionals):
1. Charitable giving. For me, that means donating tithes and offerings to my church. This percentage comes out first, before I do anything else. If you don’t give to a charitable organization, you can just skip on over to number 2.
2. A one-month emergency fund. Before I even pay down a credit card, I put a percentage of my income into my savings account to work toward my one-month emergency fund. I want to have this emergency fund before I really start paying off debt. The reason: If I have an unexpected cost arise (medical bills, car problems, etc.), and don’t have an emergency fund, it will just add more debt to my name, compounding the problem further. The emergency fund helps break that cycle of debt. Consider starting with an emergency fund of at least $1000 before you begin paying off debt.
3. Paying off debt. While I’m building my emergency fund, I will just pay the minimum on credit cards or any other debt payments I’m making. When my emergency fund is solid, I can start paying off my debt with that portion of income instead. There are different strategies to paying off debt, especially if you have multiple debts to pay off. You can read more about the Debt Snowball and Debt Avalanche methods here.
4. Current needs. This includes paying rent, for groceries, and any other day-to-day needs. This is where it’s so handy to have a budget—to make sure you keep your ongoing expenses low and can build that emergency fund, pay off debt, and still have some money left over to treat yo’ self (occasionally at least)! When you’re building your budget, be sure to look at things like fixed expenses (set costs that you’ll have every month, like rent) and variable expenses (expenses that may not be the same every month, like eating out or entertainment expenses). Your budget will continually change as your financial needs change, so don’t feel like the budget you create right now is set in stone, but it will act as a starting point for greater financial awareness and guidance.
5. When my one-month emergency fund is built up and my debt is all paid off, THEN I can begin building my savings account further. This opens the door for opportunities like investments, down payments on larger purchases, or other opportunities.
Following these steps won’t get you out of debt overnight, but hopefully, it will increase your confidence in your ability to manage your finances, help break any debt cycles you may be in, and make money a bit less stressful than it was before.
Where is your financial focus right now?—Are you stressed about debt? Do you have enough money set aside in case of an emergency? Are you working toward saving for a larger purchase or to invest?
Decide what your current financial focus is, then use these steps to make help you make a plan.
Allie Barnes graduated from Brigham Young University with a Bachelor of Science in Family Studies, earned a certificate in Substance Use Disorder Counseling from Utah Valley University, and studied writing throughout her undergraduate career. In every professional role she’s filled since then, her focus remains the same: People.
Where is your financial focus right now?—Are you stressed about debt? Do you have enough money set aside in case of an emergency? Are you working toward saving for a larger purchase or to invest?
