It gets back to the old question of needs versus wants. Layer on the ease of obtaining credit and the complexity of today’s world, and we collide with this simple question. We are often able to buy the things we want such as cars, homes and furniture on credit without saving for them first. Which means that we commit ourselves to monthly payments for a long time….

A suggested strategy is to keep your monthly fixed obligations as low as possible leaving as large as possible discretionary spending portion of your pay cheque. Why? The higher your fixed costs are, the greater pressure there is to maintain your income level and that can sometimes be a challenge when bad things happen like losing your job or becoming seriously ill. If you are stretched to the limit and then something happens, it can be a fine line.

A second strategy is to have a contingency fund large enough to cover your fixed expenses and needs for up to six months. No easy feat, I realize but perhaps retirement savings can serve with dual purpose until then? Just remember that if they are serving dual purpose, investment them as such in low risk and liquid plans in case you need them.