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Cut Costs - Increase Income

Depending on your situation, you may need to take aggressive steps to get on track. Create a budget, and identify areas where you can save money. Come up with ways to generate additional income, whether it's taking on extra hours at work, or taking on a side job. 

At this point, make only minimum payments on all your debt.


Set aside an emergency fund. Usually 3-6 months worth of expenses is recommended. If you still have high-interest personal debt, a 1-month emergency fund is best until you get back on track.



Pay Off Debt

Debt Snowball

Line up all your debt from smallest to largest, paying minimum payments on all but the smallest. Focus all your energy on just the smallest debt, and get it paid off as fast as possible. When it's paid off, move onto the next smallest debt with all the payments you were putting towards the smallest, working your way through all your debt until it's all paid off. 


Debt Avalanche

The debt avalanche is essentially the same as the snowball, but you line up your debt in order of interest rate rather than size. The avalanche is mathematically better than the snowball, but the snowball gives you a quick win. Gaining an emotional win will keep coming up. Personal finance is a marathon, and it takes endurance and discipline. Our emotions come into play more than we expect.


Emergency Fund

When your consumer debt is paid off, beef up your emergency fund to 3-6 months worth of expenses. This money should be in a checking or savings account. It has to be accessible quickly, and can't be exposed to market volatility.


Employer Matching Retirement

Early in the process, somewhere between paying off debt, and building an emergency fund, contributing to an employer-sponsored retirement fund should fit as a priority. If the gain from the match is greater than the cost and risk associated with the debt, you might consider making contributions to this type of plan while you work on your debt. 


Short-Term Savings

At this point, it's time to set money aside for upcoming larger purchases like a vehicle, a vacation, or a down payment on a home.  If you can avoid using vehicle loans, and other consumer debt, you will have huge traction in your finances.


Retirement Savings

A general rule of thumb is to save 15% of your gross income toward retirement. If you are late to the game, the number should be higher. 


Children's Education

After your retirement funds are on track, fund your children's education if that is a priority for you. In Canada, the RESP, Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) make it very attractive to set aside funds for your child's education.

Your retirement is a greater priority than your children's education.

Step By Step


Simple Steps to get you where you want to go. <Flow Chart Here>


It's important when working on your financial goals to take one step at a time. If you try to do it all at once, you won't get any traction, and you might feel stuck. The emotional impact is often underestimated in the world of personal finance. If you lay out your goals, and work at them one at a time, you'll get a powerful emotional boost every time you reach a new goal.