<prompt> Human: A lot of folks ask a lot of questions in rpersonalfinance on a daily basis about I inherited X..., We have saved X..., What should I do with X amount from my tax refund.... All these boil down to the same question: What should I do with X or, more basically, How should I handle my money?And the 1 answer is: read the Prime Directive The sidebar contains a bunch of valuable links, but probably none as important and oft-referenced as the Prime Directive, a wiki which tells you in step-by-step format and even has infographic here and a simpler version here exactly what to do with any amount of money you may have.Some dispute its effectiveness and why some shouldnt follow it emotion, risk tolerance, increased cash flow, etc., but the fact of the matter is that following the prime directive in the order listed will generally yield you the most bang for your buck read: the least amount in your money paid to other parties the most amount of your money kept, and the best strategy for earning more money with that money.While the wiki does a great job of explaining exactly what to do and in which order to do it, there are also some pretty valid reasons as to WHY you should do it in the order listed some of which are explained in the wiki and some of which arent. Id like to take a second and elaborate on the ones that make the most sense to me and hopefully others below.---Note: this is by no means an exhaustive list nor a 100 correct one, but just my thoughts on the matter, and Ill edit it with additional info asif other comments come in.---Question: Why should I...Step 0: Budget and reduce expenses, set realistic goalsAnswer: to know how best to spend your money, you need to know where your money is going in the first place. Budgeting allows you to see where youre spending your money and allows you to see where you can cut back and reallocate funds towards the higher steps listed here for the most efficient use of the funds you have.Step 1: Build an emergency fundAnswer: to ensure real emergencies dont become financial emergencies. If something unexpected comes your way job loss, homecar maintenance, unexpected travel, medical emergencies, etc., you dont have to worry about what credit-affecting monthly minimum youll have to forego. Youll have the financial security of knowing that you have quick access to funds that will allow you to at least pay for your minimum necessities: utilities, rentmortgage payment, car payment, monthly minimum credit card payments, etc.Step 2: Take advantage of employer-sponsored matching fundsAnswer: its free money. If youre lucky enough that your company offers you a retirement savings plan and even more lucky enough that they also match it, you should take full advantage of that match. But, getting to the heart of it, the number one thing I see is folks questioning Why should I do this before paying down my debt? Short answer, again: its free money. Long answer: whatever the match rate your employer is offering you is a guaranteed return on investment ROI, and one thats likely a far better ROI than paying off that 5 car loan, or a 4 mortgage, or even paying down that 15 credit card balance youre holding. Note: by paying off a debt amount at X, thats a guaranteed return on investment of X on that same amount, so it can be compared to the ROI you would receive elsewhere in other investments.For example, as my employer does, if your employer matches 25 of your contributions up to 4000 and you contribute that max of 4000 each year, your employer is simply handing you another 1000 in free money every year. Thats a guaranteed 25 ROI not to mention the gains that money will have in the market over time, versus with the ROIs just mentioned.Hell, even if you dont invest a penny of it andor its a matching HSA contribution or something similar, its still likely a higher ROI than if you were using that money to pay down debt thats at a lower interest rate than the match rate.Step 3: Pay down high-interest debtsAnswer: because of the stock market. This is the step that probably makes the least sense to folks and leaves them asking Why just my high-interest debts? The long answer: the benefit of paying off low-interest debts commonly referred to as anything with 4 interest rate, though Id personally suggest and use a figure closer to 5-6 is generally probably not going to outperform the ROI you would get if you put that money in to the stock market which has a historical average return of 7. So, essentially, the money saved by paying off that 3 loan when you could have invested that money at at least 7 and thus yielded a 4 net gain, or 7 - 3 isnt the most beneficial choice financially.However, queue the often-stated disclaimer of Past performance is no indication of future results. and to quote the Prime Directive specifically: While this has been true in the past, keep in mind that paying down a loan is a guaranteed return at the loans interest rate. Stock performance is anything but guaranteed. Basically, that means to invest at your own risk: a 7 return is no guarantee, which leads some to have some doubts and modify this step to pay off ALL debts prior to investing further, which generally isnt the most financially beneficial thing to do.Step 4: Contribute to an IRAStep 5: Save more for retirementStep 6: Save for other goalsAnswer: again, because of the stock market. Same as above, the money invested is likely still going to yield a higher ROI than using that same money to pay down low-interest debts. There are far more details as to how and in what exact order you should perform steps 4 and 5 generally, max out tax-advantaged account before taxable accounts that I wont go into here but feel free to read more about it hereBeyond that and sort of mixed in with the previous two steps, its generally debatable and discretionary as how you should spend: sock it away in an HSA if you have health problems or a growing family, a 529 if you have children that will go to college, pay off the low-interest debt if you have a low risk-tolerance, contribute to taxable investment accounts, sock it away in a high-yield savings account, etc.---Edit 1: Theres been a ton of requests for non-US versions of this. The answer: its in the Prime Directive  <response>: This should be added to the Prime Directive, IMHO. Upvote. 