What do I do with all this money?

Once you've decided that saving money is important to you and you've committed to disciplining your spending, your money will start to accumulate. It doesn't matter how slow this process is, as long as it is happening. Shoot to save 10-20% of your income. Now that you are saving money, what should you do with it?

The first thing you should do with your savings is build up an emergency fund. The size of this fund will vary based on your life situation. Most experts recommend 3-6 months of income, but if your family involves children and a non-working spouse you might want to consider saving more. This money is only for emergencies! Emergencies include covering your living expenses if you lose your job, fixing the car, doctor's bills, etc.

Some people ask, "Shouldn't we pay down our debt first?" This is a very good question, especially since we all know how dangerous debt can be. The reason it is good to start your emergency fund before you worry about putting all  your savings toward paying off debt is this: if you don't have an emergency fund and an emergency happens, how will you pay for it? With debt. By not setting aside an emergency fund, you run the very real risk of going into more debt in the case of an emergency. This amount of debt is usually going to be more than the interest you will accrue by waiting to pay off your debt.

Where should you keep your emergency fund? Traditional bank savings/checking accounts don't earn very much interest, but they are very safe and your money is easily accessible. You don't have to worry about an investment tanking and losing your money, and when you need the money you can get it very quickly. Some internet banks offer higher interest rates than Wells Fargo/BoA. Credit Unions also offer higher interest rates and better service. Make sure your bank is FDIC insured. You might want to keep some cash at home just in case you need immediate access, but keep in mind that no one is insuring the money under your mattress and it is earning zero return. Your emergency money should NOT be invested in the stock market or in long-term bonds.

The second thing you should do with the money you are making is pay off any credit card debt and consumer loans. Consumer loans are taken out to buy things such as TVs, washers and dryers, furniture, etc. While you are in debt for these items, your hard earned money is being put to use paying down interest. This isn't benefiting you at all, it isn't helping you accomplish your goals. Once you get out of debt, all of your savings will be able to go towards your goals rather than towards interest. That is a beautiful thing.

Once you are out of debt and have an emergency fund, it's time to have fun and really invest your money!