How to Balance Financial Priorities

balanceI am currently on my way home from visiting my in-laws in Minnesota, so please enjoy this post from Kali Hawlk.  Kali blogs about personal finance over at

Fundamentally, personal finance is pretty simple. Spend less than you earn and try to save more than you spend. Easy, right?

But of course, it always seems to be more complicated than that with retirement to think about, debt to deal with, bills to pay, and goals to reach. Not many of us have just one financial priority to think about; instead, we’re forced to try and make our income stretch as far as possible to take care of multiple things.

To keep all the balls in the air, we have to learn to balance. It will be hard to be successful with our personal finances if we blindly focus on one goal at a time.

Here’s what to focus on in order of importance — and how to balance financial priorities with one another so you can work toward achieving all your big money goals:


debt slaveRepaying debt is a tricky financial priority. On the one hand, if you throw everything you have at destroying your debt, you’ll get rid of it as fast as you possibly can. And you’ll save money on interest charges if you can pay off your debts quickly.

But you’ll also be “racing to zero” if you try this approach. This means that once your debt is repaid, you won’t have anything in savings or investments because all your spare cash went to credit card or student loan balances.

Remember, this is all about balance. Because of the negative financial implications of carrying debt, do put the majority of your available cash towards debt repayment each month.

But also hold back ten to twenty percent of this available cash and divvy it up between two other extremely important financial priorities.

Emergency Fund

First thing’s first: you need an emergency fund so you can handle unexpected expenses without having to whip out the credit card and push yourself even farther into debt.  Without one, you’ll end up putting emergencies on a credit card or turning to short-term lenders such as

It’s okay if you only have a little bit of money to contribute to your emergency fund each month. That little bit will add up, even as your debts are going down thanks to your other efforts. Aim for at least three months’ worth of you-have-to-pay-’em-no-matter-what expenses (like rent, utilities, and groceries). If you’re self-employed, you probably want to boost that number to at least six months’ worth of expenses (and aim for a full year).

If you don’t have debt, getting your emergency fund in place is going to be your top priority. But it still needs to be balanced with…


FloridaBeachWhether you have debt or not, or have an emergency fund or not, your contributions to your first important financial priorities must make at least a tiny bit of room for what you need to save for retirement.

The easiest way to balance paying off debt and building an emergency fund with saving for retirement is to take advantage of free and tax-advantaged contributions where you can. This means signing up with your employer’s retirement account plan and opening something like a 401(k) (the specific account may differ depending on your line of work).

These retirement accounts are tax-deferred, which means you won’t pay taxes on the money you contribute now (you pay the tax when you withdraw the cash in retirement). This is good if you’re feeling cash-strapped. A bigger savings on your tax bill may mean more money in your pocket right now.

You need to contribute at least enough in your 401(k) or similar account to secure an employer match if you’re offered one. This may be anywhere from 1% to 6%. Get that match — it’s like free money! — and slowly up your contributions over time as your debt gets repaid and your emergency fund fills up.

If you’re self-employed, you can look into either a Solo 401(k) or SEP IRA. You won’t get the match, but your contributions are still tax-deferred.

Big Purchases in the Future

Once you’ve gotten your debt under control, established an emergency fund, and set up automatic monthly contributions to your retirement account, it’s time to focus on other big financial goals you set for your future.

Think things like a down payment for a home, funds for an around-the-world trip, or going back to school for some sort of additional certification or advanced degrees.

It will be much easier to balance these financial priorities with things like retirement contributions once all your debt is repaid and your emergency cash account is fully funded. These are important areas to invest in, but the reality is they’re fairly optional — or at least, much lower on the financial priority list.

Take care of your debt, establish your emergency fund, and get in the habit of regular retirement account contributions before allocating a small percentage of your monthly discretionary income to savings funds for big purchases in the future.

College Savings

Yup, saving up for your kid’s college education came in last on this list for a reason.

As a parent, you want to give your children everything they need and then some. But you can’t provide a smooth ride for your kids if you don’t take care of yourself financially, first.

Not to mention, there are plenty of scholarships, grants, and options for paying for college (without racking up a ton of debt). Meanwhile, no one is going to write you a check so you can pay off your mortgage or add to your retirement fund.

It is okay to plan on helping your kids through their higher education years, but don’t feel obligated to give them a full-ride scholarship from the Bank of Mom and Dad. As they get older and approach their high school careers, you can start explaining to them that they will be expected to help out with college expenses.

They can do so by earning good grades and securing academic merit scholarships, dedicating themselves to a sport or other activity for which universities grant scholarships, or by picking up a part-time job to help pay for some discretionary expenses (like hanging out with friends). They also need to understand that different universities charge different tuitions. Help them understand all the different factors that go into college costs and what to think about when choosing a college.

How do you balance your financial priorities?


  1. says

    Holly, are you ever home? :)

    Kali: Good tips! I agree that even if you’re trying to get out of debt, you still need to give some attention and focus to these other goals. Even if you could buy larger ticket items like a car with cash from your savings, would it be worth it if it means draining your emergency fund and putting yourself risk? Absolutely not.

    • says

      Definitely! I would try to have at least a small emergency fund in cash, though, even while you’re working to pay off debt. It would be a big step back to have to take if something happened now but you didn’t have the money to cover it, and you had to take on more debt because of it.

  2. says

    Great list. I agree that it’s important to put some attention toward retirement at the same time as debt payoff. Otherwise you may find yourself in a position where you take years to become debt free, but you have nothing to speak of in retirement savings. Personal finance is of course personal, but I think balance is essential!

    • says

      I agree, Dee! And I think too many people get caught up “racing to zero.” Unfortunately, paying off debt only gets you out of the red; you’re still left with a ton of work to do once you’re debt free if you completely ignore all your other goals.

  3. says

    Great post! I always struggle with the debt part. Being a personal finance blogger, I feel like I need to put every last extra penny toward our debt, but it goes against my better judgment of keeping balance in all things–and not going insane. Thanks for sharing!

    • says

      That not going insane part is definitely hard when you have lots of financial priorities to balance! I know it’s tough not to throw everything at something like debt, but I think once you ARE debt-free, you’ll thank yourself if you worked to contribute a little here and there to other goals while you were repaying what you owed. That way, you’re not starting with a net worth of $0.

  4. says

    Nice list Kali! We plan to help our kids with college tuition but they will be paying for a good chunk of the incidentals (fees, textbooks, midnight food runs, etc.) I agree that this should come last on the list. Taking care of savings, debt, and retirement all have greater impact on your personal financial future.

  5. says

    I prioritize things a similar way as you, but I don’t pay more than the minimum on my debt. The reason being that the interest rate is low enough where it makes sense to invest it. But generally this is how I would approach things.

    • says

      That makes sense, DC. Interest rates definitely play a big role in helping determining how much of your debt you need to worry about paying off in a particular time frame. If you have low interest rates, it makes sense to prioritize other goals — like investments — above your debt. (That’s what we do with our mortgage.) I think I should have specified things like, debt from consumer credit cards.. I don’t think low interest rates exist for that!

  6. says

    Nice list Kali! I think the thing that so often gets missed when paying off debt, I did this myself as well, is to overlook some of these other things. I get it on one level, but many of these are still very important to work on, even if only in small amounts. I’m with you on the college aspect as well. There are no loans for retirement. If we can help our kids, great, but it needs to come last and we can show our kids we love them much more by establishing a good sense of financial literacy in them.

    • says

      Sounds like you handled everything in a super smart, effective way! That’s awesome, Kassandra :) Other folks could definitely learn a thing or two from how you handled it — although, you also have a fair point in saying that everyone needs to be honest with themselves and their own financial situation, and act in their own best interests (and that may vary from what someone else chose to do).

      • says

        Whoops, sorry John — not sure how that reply got put in two different places! I was trying to reply to yours to say, I really love that you’re focused on providing financial education over just handing cash to your kids. I think that’s going to serve them exponentially better in the long run, and they’ll be thanking you for doing them this favor when they’re adults in the real world who know how to handle money for financial success!

  7. says

    Setting priorities can be hard – especially when you’re paying off debt, but had a kid so you want to save for college education. Plus, you want to go on vacation, but feel like you should put every single penny towards debt. It’s tought!

    • says

      It’s DEFINITELY tough. Especially when vacation temptation is in play! Honestly, we’re struggling with that right now. We have a bit of extra money floating around right now and we know we should save/invest it.. but we’re dying to go on a nice, relaxing trip somewhere after working so hard so far t his year!

  8. says

    We have been focused heavily on paying off our debt, this way we free up a bunch of cash to attack the other items like an e-fund, retirement and college savings for our children. Spreading the money around at the same time for us on all f these priories, would delay the debt repayment and we made the personal decision to knock it out first. We did keep a modest e-fund during that time.

    • says

      I think as long as there’s some cash available for emergencies, it’s okay to focus heavily on debt repayment — especially if it means paying it off significantly earlier. It’s when other financial goals are completely ignored and there’s nothing available in savings or retirement accounts that you may run into problems that could force you deeper into debt.

  9. says

    Great list Kali! I love that you talk about “balance” as I am in the “get out of debt” mode but always worry that the lack of a solid emergency fund could have a negative effect.

    • says

      I definitely think balance is important. I know it’s hard to think about anything else when you’re repaying debt, but even setting aside $10 to $100 (whatever is a “small” amount to you) per month for savings is going to make a big and positive impact on your finances. You’ll have cash to cover emergencies while you’re paying off debt, and you won’t be starting from $0 when you’re debt free and switching over into serious savings mode to build up your nest egg!

  10. says

    very nice post! I always struggle with the debt part. Being a personal finance blogger, I feel like I need to put every last extra penny toward our debt, but it goes against my better judgment of keeping balance in all things–and not going insane.

  11. says

    Great post on prioritizing and balancing! I’m glad you included 401Ks–so important to save for retirement, and to start as young as possible, especially since it’s a tax-deferred vehicle. Thanks for this!

  12. says

    It varies month to month. I usually have a set amount I like to contribute (and more if I make more than projected), but like this past month, I didn’t save anything at all because I was below projected. It comes down to taking care of basic needs in that case.

  13. says

    When I was paying off debt, I kept an E-fund between $1K-$2K. I also made sure to continue to contribute to my RRSP in order to get the employer match – that was free money I was not about to pass up. I went gung-ho on the debt repayment side of things because I really had a lot to kill and wanted it gone asap. People also have to evaluate what feels right for them and their life situation when it comes to money and allocate their funds accordingly.

    • says

      Sounds like you handled everything in a super smart, effective way! That’s awesome, Kassandra :) Other folks could definitely learn a thing or two from how you handled it — although, you also have a fair point in saying that everyone needs to be honest with themselves and their own financial situation, and act in their own best interests (and that may vary from what someone else chose to do).

  14. says

    It is so important to take care of retirement needs before giving money to your kids. I can guarantee most of them would rather pay for college than have to take care of you financially when you get older.

    • says

      Exactly! And I always think that those children won’t be able to take care of their parents regardless, because they probably never learned how to financially care for themselves. If you always bail your kids out of tough money situations, or remove all financial obstacles for them, they’ll never understand how to figure it out themselves and stand on their own two feet.

  15. says

    It always amazes me how many people I know that put their kids before themselves or compromise their own finances for their children. I love my child more than anything in the world but if we weren’t able to save for her post secondary (as we do) I wouldn’t. I also wouldn’t put my own retirement in jeopardy for her future when she will have the rest of her life to work it out. Balance is key!

    • says

      I agree, Catherine, balance is so important! With parents that try to give their kids so much financially, I always wonder if they realize that they’re not doing their child any favors by essentially preventing them from being able to learn how to take care of themselves as adults. I also wonder who the parents think is going to take care of them when they can’t retire, pay their mortgage, or handle their debt load because they allowed their children to use up their money and put their requests for parental support ahead of their own financial needs?

  16. says

    Great post. I think you have to do that which makes you feel most powerful with your money. I used to save a lot and repay the minimum on my student loans. When I realized I was pretty much only paying off my interest, I decided to make a change. Now I repay a lot more of my student loans and don’t save as much. I know personally it’s the right choice for me, but it may not be right for everyone. It’s something everyone should think about!

    • says

      You hit the nail on the head.. bottom line is personal finance is personal! We all need to make our own decisions based off our unique situations. Love how you put it as well, in that we should act in a way that makes us feel powerful with our money.

  17. says

    I do find it hard to find balance among all of the financial priorities we face, but I think you’re absolutely right in placing them in the order you have. In particular, I second what you say about not necessarily funding your children’t post-secondary studies 100%. In our efforts to become debt-free, we have made it clear to our daughter that she will need to fund part of her university expenses. That was tough for me! Especially when she ended up with an unpaid tuition bill. But we said “No” to her request for a bail-out. VERY tough to do!! Here’s the happy ending though: She has earned the money through work and athletic grants that she found, and it’s paid off : ) I truly believe that this experience will benefit her so much in the long run.

    • says

      I have no doubt it’s tough to tell your kids that there won’t be any full rides from you — I know you want to make sure your kids have it better/easier than you did yourself, and you want to protect them from the kinds of financial troubles that you may have experienced in life. But you’re also right in that the experience of having to work for and manage some of her own money is invaluable for her and is going to set her up better for adult life than you providing all the financial support necessary would have.

  18. says

    There are so many choices to make when it comes to our money that I think the best way to manage your priorities is to figure them out first. I have so many clients that are working hard and making money but don’t really know what they want out of life. When you set goals for yourself, all of the sudden the answers to money questions become easy. For us, we are focused on achieving financial freedom in the next 10 years, so we are keeping our day to day costs low and building up our savings as fast as we can.

  19. says

    What I like most about the article is that it’s talking about goal diversification. It’s impossible to know how your investments (401k, college savings) will turn out when compared with other worthy options for that money (like paying off debt). The prudent approach is to put some of your money towards both options, and hedging in case your investments do well, or poorly.

  20. says

    Great list, Kali! I love seeing an emergency fund as a top priority. It is so often overlooked and I know for people trying to get out of debt, it can be even harder to set money aside that just sits there. But emergencies, big and small, happen constantly. The other hard one for parents is putting college savings on the back burner, but again it should be if you aren’t saving adequately for retirement goals and have debt. Most parents are very resistant to this, particularly with the rising college costs, but there is no retirement “loan” option for you. If you don’t have the funds, you don’t retire. Kids have multiple options to help pay for college before they even need to consider student loans. And I tell parents if helping your kids pay for college is such a priority, then let’s kick it into gear and get everything settled (like debt eliminated) so you can start saving for your child’s college education.

  21. says

    I like the Balanced strategy and practice it myself. Though I’m paying off consumer debt I still funded an emergency fund and am saving for other items as well. I’m also not too concerned with paying off debt that has a low interest rate like a mortgage right now. Later on if there is additional money I may change that but I’d rather put more into retirement.

  22. says

    Great list! This is basically the order in which I am tackling things as well, except I haven’t stopped contributing to my retirment fund since I would be giving up a generous match if I stopped. I don’t want to give up that “free money” and the compounding interest it will generate. Otherwise, my focus is on paying off debt, getting my E-fund up and THEN I’ll put more toward my retirment fund and increasing my E-fund up to 6 months of expenses. (I’m only shooting for an E-fund of $1-2k while paying off debt.)

  23. says

    I aim for balance. When I was still living with my parents, I built up an emergency fund and paid the minimum on my student loans. I could never go all in on paying them back, as I’d be worried over having too little in the bank! While I felt somewhat guilty about not focusing more on my student loans, they didn’t worry me as much, so I prioritized saving. I did open an IRA earlier this year as it pained me not to be taking advantage of starting early with investing. No regrets there.

  24. says

    I agree with this logic, by the simple fact that we DON’T know what future returns will be it is a good idea to payoff debt and invest, so you can get the best of both worlds.

    Now I have more debt than I desire, after knocking out the only loan we have over 5%, I plan on stuffing that the money into a ROTH IRA (while still paying some extra on debt and 401(k)s… fun times!)

    College fund for kids will be a bonus IMO, we need to have financial independence first, and if from there I still earn enough side income to help them out, why not?

  25. says

    Here in Canada we have tax free savings accounts (TFSA) that means all income earned within the account is totally free of tax. A nice little retirement income builder that I have been allocating money to since it was first introduced 6 years ago. I try to balance that with my ‘spending’ money since I have a tendency to save more than spend

  26. says

    I think the hardest thing for me to balance is having fun and living in the moment, while still keeping an eye on the future. It’s important to remain balanced. If the scales are skewed on either side, you risk burnout or worse – being broke and in debt.

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