Competing financial priorities

It is not always easy to know what you should do first, financially speaking. Debt, mortgage, children, retirement planning and saving are extremely taxing on your hard-earned dollars.

Obviously, your first priority is to pay your monthly bills. It is pointless to contribute to your RRSP if you are in arrears on your hydro bill. If you can’t pay your bills, you need to review both your expenses and income. Most likely, you will have to decrease your expenses and/or increase your income.

Once the bills are taken care of, you need to allocate money to service your debt; usually 15% of your net income. Any dollar towards your debt is a form of saving, as it is as much you won’t have to pay in interests.

While paying down debt, you also need a solid emergency fund. As previously stated, lines of credit and credit cards are not emergency funds; they are debt in the making! You need to build this fund with your own money.

For many people, this is as far as their dollars stretch….and it is OK for the time being. These are the three top financial priorities. As long as you don’t have them in order, you will probably have to delay on the two following ones:

• Contributing to an RRSP/retirement planning. Government pensions won’t get you far in your senior years. The average monthly amount from the Canada Pension Plan is $ 600.00. You definitely need to save. If you can’t, start doing so when your emergency fund is built. Once your debt is paid off, you will also be able to save even more.

• Contributing to your children’s RESP/saving for their education. This is a heated debate. A lot of “experts” make it mandatory for parents to pay for their kids ‘education, sometimes to the point of shaming them or making them feel guilty if they don’t do so.

Personally, I am a firm believer of “paying yourself first”. You are better off being debt free and able to retire comfortably than being able to pay for tuition fees. Not to mention your children will probably not be able to take care of your retirement pension or living expenses. Don’t feel bad if you can’t save for your children’s education. You are already providing a lot for them.