Managing your money is often a balance between saving, investing, paying down debt and enjoying the moment.

Striking the right balance for how to allocate your money can be challenging, but a good first step is figuring out your priorities. Once you’ve established your list, the big financial decisions in your life can start to feel more manageable.

Here are six steps to take to manage your money more effectively.

1. Define your financial goals

You know you need to save, plan for retirement and keep your debt in check. But what does that really mean to you? It can be helpful to put the numbers on the back burner and think in terms of what you want your money to do for you, instead.

Examples of financial goals include:

• Buying property
• Paying for your child’s education
• Feeling financially stable
• Saving for retirement

You might be planning for more than one of these things or have completely different goals in mind. What matters most is prioritizing your goals, in writing, so that you can weigh them and make a plan to work toward them.

These goals exploration topics can help you determine and prioritize your financial goals.

2. Address your debt

Debt is often thought of as universally bad. It costs interest and can hurt your net worth. But not all debt is created equal. In some situations, using debt to help manage your finances can be a useful tool.

Most people can categorize their debt into productive and nonproductive. For instance, you might consider your mortgage productive debt: It can help you build equity (and your net worth) and may help you qualify for a tax break. Student loans can also be thought of as productive debt — they may have been necessary to help you get an education that led to you earning your current income.

On the other hand, credit card debt, especially if it was accrued by buying things that don’t contribute to your net worth or financial future, is often considered nonproductive. Make nonproductive debt your focus for eliminating as soon as possible.

Even productive debt can be nonproductive when it carries high interest rates. “High interest rate” can be a relative consideration, so it’s generally a good idea to consider whether the interest you’re paying on debt is higher than the return you might receive if you invested the same money.

3. Prepare your emergency fund

Even the best-laid financial plans can be derailed by an emergency. Having an emergency fund in place can be critical to achieving your goals, whatever they are.

Your emergency reserve may vary based on your previously defined goals and financial situation. However, a general rule of thumb is to have at least three months’ worth of your household income set aside for emergencies. 

Next, start to think about where you’re keeping it. Consider products that might earn you a higher interest rate than a standard savings account, such as a certificate of deposit (CD) or money market account.

If you have an emergency that requires a smaller amount of savings, you may want to think about using a home equity line of credit to pay for it. Taking on low-interest personal debt would be better than selling assets to cover an unexpected expense.

4. Have a plan for both saving and investing

How much money you set aside for saving and investing, and how you choose to allocate it, will also reflect your goals and timeline.

Consider saving for shorter term goals, such as buying a house, as a savings account is more liquid than money in investment accounts. Consider investing for your longer-term goals that will benefit from time and patience, such as retirement or paying for your child’s education.

When deciding how to invest for your goals, be sure to carefully assess your risk tolerance. Talking to a trusted financial professional can help you assess the risk of different assets and which might work for you and your goals. 

5. Factor in the fun

For most people, fun is more of a day-to-day interest than a goal, but it’s still incredibly important to your quality of life — and your budget.

It can be helpful to think of fun in non-financial terms. For instance, if you value the family time you get on an annual vacation, the destination may matter less than making sure you get a break each year to spend time together. Once you’ve identified that core criteria, budgeting for fun can be easier.  Some years, you might be able to vacation in Europe, other years you might go camping.

Working with a financial professional can help, as they can look at your wish objectively. Incorporating enjoyable activities into your financial plan year-round, whether it’s a semi-annual vacation or weekly date nights, can help you make sure having fun doesn’t derail your fundamentals.

6. Stay disciplined

There are several theories for the best way to manage your money. These decisions are never cut and dry and what’s right for you might not be right for another person, even if you have similar financial situations.

How you balance your money generally depends on your life stage and personal goals. Knowing where you want to be five years from now can make your big picture financial balancing act much easier.

Learn how we approach financial planning.