By Leo Babauta

Welcome to the start of the Awesome Finances module! Today we’re going to use your first Daily Awesome Finances Session to do something very simple: decide what track you’ll be following for this module.

In this module, we have two tracks:

  1. Debt reduction track: If you feel any pressure from your debt, this is the track to choose. If your debt is easily manageable, there’s no need to worry about it, but if you feel any stress because of your debt, you should focus on reducing it. If you’re overwhelmed and drowning in debt, we’ll look at ways to get it under control and how to start shrinking it. If you have a bit of debt and want to get out of it completely, we’ll look at that.
  2. Savings/investing track: If you aren’t in any debt pressure, you might want to focus on increasing your savings this month. And if you have a bit of savings already in place, we can look at some simple ways to set up your investments.

If you’re already advanced beyond those two phases, you might look at ways of automating your finances this month, so you don’t have to worry about finances as much after the month is over.

Financial Priorities

If you have any doubt at all about which of the two modules is for you, my recommendation is to focus on the debt track. The reason is a matter of priorities. I believe your financial priorities should be:

  1. A minimum amount for basic necessities — the basic needs like food, shelter, clothing. This is less than most people assume.
  2. A small emergency savings fund. If you don’t have at least $500 in savings right now, you’ll be in trouble any time something unexpected comes up. A savings fund helps smooth out your finances.
  3. Debt reduction. After you have the basic needs met, I would try to reduce or eliminate your debt. Basically, if you’re paying interest, that’s money you could be saving or investing. There’s a minimum interest rate that’s fine to pay in some cases, but in general it’s better to be investing than paying interest.
  4. Increasing your savings. After you’ve paid off your debt, I would focus on getting your savings account higher so you have a basic level of financial security.
  5. Investing: Now that your fundamental financial needs and security are taken care of, you’ll want to put as much excess money as you can into investments, so your net worth can grow over time. This isn’t that hard to set up and automate.
  6. Fun times: Only after you have the basics taken care of, should you be thinking about other kinds of consumption. I didn’t really travel or buy electronic devices, for example, until I was done with the basics above.

I realize not everyone is going to follow these priorities, but they’re something to consider as you decide what to focus on this month.

So pick a track to focus on this month, and whenever I send out an email, ignore the ones that aren’t for your track. This should be fun!