If you’re one of millions of Americans who struggle with debt, you might be frustrated. Money seems to be going out the door at a fast pace. You just want to finish paying down your debts so you can enjoy life. At the same time, you also have to save for retirement. This is extra money leaving your account. It leaves many people to wonder if they should stop paying retirement until their debt is paid off.
You only have so much money. After paying all your bills, there might not be much extra to go around. Are you expected to both save for retirement and pay your debts? Well, yes. You borrowed money for whatever reason. Saving for your golden years is crucial. You don’t know how long you’re going to live and shortchanging that now can be devastating later. This is where you sit down and do an accounting of your assets and money.
On top of this, you’re also expected to put money into your savings account. Having a rainy-day fund for emergencies is also crucial. You never want to be caught in a bad situation with no money. What would happen if you lost your job, the economy turned sour, or you got injured? Having extra money saved up for these times can save you big time.
Let’s take a look at a few things you can do:
1) Determine Your Retirement Priorities
Seeing that you have debts to pay off, retirement to save for, and an emergency fund to add to, you might have to decide which of these is most important. Do you choose to aggressively pay off debts first? How do you balance that with saving money? In reality, saving money for an emergency is your number one priority. You may not agree with that, but an emergency can happen at any time. If you were to lose your job or had a major breakdown that cost big money, where would you be? Then you’d have nothing for your debts or retirement.
You also wouldn’t have money for rent and food. Financial emergencies can strike at any time. Be prepared for those first. Once you have 3-6 months’ worth of expenses saved up, you can shift to other priorities.
2) Make Sure You’re Insured
Along with building up an emergency fund, having good insurance to fill in the gaps is also important. Most people are underinsured. They want to save money so they get the cheapest policies possible. Yet, if something were to happen, like a natural disaster, they would lose out so much more in the long run.
It’s these types of emergencies that put most people in debt. Their health insurance doesn’t cover a needed procedure or surgery. Without being covered, you risk bankrupting yourself and your family.
3) Look at Your Debts
Once you’re financially safe and secure, it’s time to look at your debts. More importantly, some debts are more dangerous than others. A car loan, a high-interest credit card, payday loans, etc. These often have high interest and drain you financially. Focus on paying these debts off as soon as possible. Low interest debts can wait a bit. They aren’t a major risk to you financially.
4) Now You Focus on Retirement
High risk debts should take priority over retirement savings. When you have those paid off, you will start saving thousands of dollars. That’s extra money you can make up for towards your retirement goals. Yet, retirement saving should take priority over low interest debts. You should start saving for retirement as early as possible. If not, you might end up having to work for years longer than you anticipated.