This question from a Liz Weston reader brought up the timeless dilemma of how to prioritize where your money should go. In the case of this reader, he/she is working with less than $25,000/year total and wants to figure out how to use the little bit left over after the essentials to improve his/her financial picture. Interestingly, the reader is considering using part of the money to make extra house payments, which shows you that this issue really is a problem for a lot of people.

Weston nixes the extra house payments, saying the reader's priorities should be, in order: paying into a retirement vehicle, paying off credit cards, having an emergency fund, getting health/Disability insurance (reader is self-employed), then finally making extra payments on a house.

I think I would set those priorities a little differently. I hate high-interest debt, so I think the credit cards should be tackled first. There's an argument that you should always "pay yourself first," otherwise you'll never pay yourself, because you'll always find something that needs to get paid off. That has some validity, so I guess how you prioritize may have to do with your own discipline in dealing with money. For me, though, the credit card debt would come first. The simple math is that you're going to save more money from not incurring the higher interest on credit cards than you'll gain from a retirement fund.

But you should definitely pay yourself second. A retirement fund gives you a lot of bang for the buck, including the gains on your money and the interest-free growth. If you work for someone else and you're looking at a 401(k), you might be getting a company match, too, which is free money.

For me, health insurance then comes before the emergency fund. If you're self-employed and don't have health insurance, you're going to need a whopper of an emergency fund if you get sick. It stinks to pay for insurance, but at least it can give you more predictability if you do get sick or have an accident. Fly without it and you can really get yourself into some trouble, both financially and in the accompanying stress associated with trying to keep up with the bills. (And trying to make sense of the hundreds of confusing bills that will show up in your mailbox.)

If you're making under $25,000, I'd nix the disability insurance. This becomes more important as your income gets higher, and it also depends on your occupation. I sit at a desk all day---unless something drastic happens, I'll still be able to type. But if I provide construction services as an independent contractor, the chances are greater of something happening to me that hurts my ability to do my job.

Next, of course, is the emergency fund. Nothing much to say about that; it's good to have a cushion.

Finally, the extra house payments. Actually, if you got a mortgage during the super low-rate period we just experienced, I might still shy away from paying more on the house. A decent mutual fund would probably bring you more return if you swung a mortgage at less than 7%. But this again is a matter of how much you can deal with debt. There's something nice about paying your house down, in that the "return" is guaranteed. (I say "return" because you're not getting money exactly, but saving money in the long run.)

How do you prioritize your extra money?