A couple of weeks ago I wrote about staying out of debt. Once you've climbed and conquered what seemed like an insurmountable mountain, you should reward yourself.

But...don't go into more debt with all your rewards; be reasonable. Now you're wondering what to do with all that new-found money in your bank account that's not going out the door to pay down debt.

There are two steps you need to take with that money. The first step is building an emergency fund. The lack of an emergency fund is probably what got you into debt in the first place. This emergency fund is there for emergencies; that great pair of shoes is NOT an emergency. Emergencies are situations that are unexpected and have to be immediately taken care of, such as fixing the leak in your roof, especially if it's over your bed. Another emergency would be car repairs because you cannot get to work unless your car is running. Again, buying shoes are does not constitute an emergency unless you're down to your last pair.

Another emergency would be loss of a job. Most people don't know how much to put in their emergency fund. It really depends; it depends on how long it will take you to find another job, with the same salary or higher, should you lose the one you currently have. You need to have that many months of expenses saved in a liquid account, meaning an account that you can go to the bank right now and withdrawal. You do not want to have your emergency fund in investable securities; if the market is depressed when you need those funds, you'll be selling them at a loss. Keep the fund liquid.

The second step is to invest for retirement with those funds you were first using to pay down debt and then to create your emergency fund. Now you're on your way to avoiding the three biggest financial mistakes people make: having debt, not prepared for emergencies, and not prepared for retirement.

Please let me know how long you think it will take you to pay down debt and establish the right amount in an emergency fund. I'd like to know if you're already there and are on your way to saving for retirement.