Congratulations, you have won the battle against unemployment! You have a new job, and money is coming in. Now what?
You may be tempted to start overdue home-improvement projects, take a weekend vacation or replace your car. All of these are good choices but only after you have rebuilt your financial foundation.
Reconstructing this foundation may need to include addressing repairs you have put off, replenishing your emergency fund, paying off debt and catching up on your retirement investing.
Unfortunately, you also may be earning less money. CareerBuilder reports that 61 percent of people who lost their job in this recession and found a new one took a pay cut. And regardless of your current pay rate, youll need a plan to address the multiple priorities facing you.
Where to start? Start with your budget; it is your written plan of action and priorities. You will, of course, budget for basic necessities and obligations, but dont forget the less than monthly expenses, those things that if, left unattended, may turn into emergencies.
Take time to assess your car, home and personal health maintenance. These three areas can go unattended when finances get tight. Further delay in addressing them could cause an emergency, the last thing you need during your financial recovery.
Once you have this maintenance taken care of, it is time to address your emergency fund and debt. Always build your emergency fund back to at least $1,000 before tackling your debt. If you neglect this step, unexpected expenses can add to that debt.
With your emergency fund in place, you can focus on your debts. Pay them off as quickly as possible from the smallest balance to the largest. You may have had big plans for your tax refund but paying down debt with it can be one of your best financial moves. With each bill you pay off, there will be a noticeable reduction in stress, which will benefit your relationships, health and job performance.
Once your debt is paid off, its time to build a complete emergency fund equal to three to six months of living expenses. There will be another emergency in the future, and being prepared will make it more manageable.
After you have your debt paid off and emergency fund in place, you can begin saving aggressively for retirement. What does it mean to be saving aggressively for retirement? Ideally, this means setting aside 15 percent of your take-home pay. Yes, this may seem like a large amount, but you need to catch up so you can retire with financial security.
You may want to seek out the advice of a financial planner at this point. A good adviser can be a source of critically important guidance about where and how to invest, but watch for high sales commissions and fees. They can erode your returns.
Celebrate your new job by making a recovery plan and sticking to it. Choose to put your personal recession in the past and build a solid foundation for the future.
www.PersonalFinanceCoaching.com. Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance.