We know we should be saving for emergencies, putting money towards retirement and investing for the future. But knowing how much to save, where to start and what to prioritise isn't always as straightforward.

Jason Lowe, chief operating officer of OceanTree Financial, answers some of the money questions we should probably know the answers to.

How much should someone realistically have in emergency savings?

I’m more on the conservative side. I think people should have a little bit more rather than less. I think people should have six months of their fixed living costs. If your fixed costs are $4,000 a month, multiply that by six. That’s what you should have in case a rainy day comes.

In today’s economy, six months is ideal. Once you’ve got that security, you’ve got that clarity. You can start thinking, “How can I increase my income? What else can I do to earn more money?” When you’re operating out of lack, it’s much harder to do that.

If there’s very little left after your bills each month, where do you start?

First things first, you want to pay your bills. Anything discretionary has to come out of what’s left of your income. It may be a situation where you need to consider upskilling. What else can I do to put myself in a position to earn more income?

Unfortunately, a lot of people in Bermuda are in that position. They have money coming in, but their bills are 80 per cent of what they make. They may need to upskill, pivot or maybe do a side hustle. You’ve got to do something else to increase that income.

The vast majority of people are earning from earned income. Most people have one source of income. They’re trading their time for money. Even if you’re working for yourself, you’re still trading your time for money.

Should you prioritise paying off debt or building savings?

There are essentially two types of debt: good debt and bad debt. When you have debt on an appreciating asset, as long as you’re able to make your payments, that’s not necessarily a bad thing. Property is good debt. That’s not debt you’re aggressively trying to pay off.

However, for people who have bad debt, such as credit card debt or a car loan, and you’re in a position to pay that off faster, you have to do that. You’re then operating from a position of more financial clarity because eventually you’ll be able to save more aggressively.

Credit card debt costs you. On average, it’s between 19 and 22 per cent annually. If you can increase those payments towards bad debt, do it, but you always want to be putting a little aside for savings. Let’s say you’ve got $300. Put $200 or $250 towards bad debt and the rest towards savings.

When should you start investing, and how much money do you need to begin?

There are essentially two ways you can invest. You can invest a lump sum, which I wouldn’t recommend unless you have your emergency fund in place. If you’re looking to invest a large amount, have your emergency fund intact first.

Another way is to invest on a regular basis. That could be before you have your full emergency fund in place because some people lack discipline. Some people never get to that six months because they look at it as impossible.

For most people, that could mean investing monthly, either directly into a brokerage account or through a financial professional. You can set aside a couple hundred dollars each month. Most people can start today as long as they have some level of disposable income.”

How much should we be putting towards retirement?

As much as you can. Again, it boils down to the individual. Retirement requires a more detailed investigation because people need to determine what they’re actually going to need. That can fluctuate between 60 and 80 per cent of what people make per year. We would hope that by retirement you’re no longer carrying debt such as a mortgage, loans or education expenses.

If you’re making $100,000 a year, you’re probably going to want access to $60,000 to $80,000 a year to maintain your standard of living. Health insurance will increase. If you like to travel once or twice a year, you’ve got to factor that in along with your fixed expenses. If you’re planning to retire at 60, people are living longer, so you’ve got to have money for another 20 to 30 years.

What’s one financial mistake you see people making repeatedly?

They overspend. The number one thing to secure financial clarity and security is understanding where your money goes on a monthly basis. What I do with my clients when we’re trying to figure out a budget is tell them that if they can master their budget and account for where every dollar goes, they’re in a much better position. A lot of people have no idea where their money goes or how to budget, and they start making the same mistakes year after year.

Then there’s the misuse of credit cards. Credit card debt is a killer, especially when it comes to the interest rate. A credit card is meant to be a tool. It should only be used when you have the money. Master your money and use your credit as a tool rather than money you feel you have access to.

What’s one change someone could make this month to improve their finances?

Invest a portion of your disposable income, even if it’s just $100 a month. Our clients can start investing with $300 a month. The majority of the population has at least $1,000 left at the end of the month — at least 51 per cent of working people. So they should be investing.

The vast majority of people can do something. Even if you’re starting small, you can start putting some of that disposable income towards investing for your future.”