We all know that we are supposed to start saving as much as possible as early as possible.  The trouble is when we have student loan debt or credit card debt AND want to save for retirement AND for a vacation AND for a home as well then sometimes it is a little less clear where to start.  I know that debt can really take its toll emotionally.  It can be overwhelming and cause even more damage with late payments, fees and interest which puts you in a continuous downward spiral.  It can be tricky to find the right balance between paying off your debt while still saving towards your other goals but it is possible.  Having your loans paid off is worth so much more than just the money with the relief and freedom you will ultimately feel.

So how can we balance between paying off debt and saving our money for our goals and for the future?  The key is to prioritize and then just start somewhere.  Once you get started you will be surprised how much easier it gets.

The best way I have found is to start saving and paying off your debt in this order:

  1. Retirement account – at a minimum save your company match amount.  When your company contributes to your account by matching dollar for dollar what you save towards your retirement you should be taking full advantage.  They are essentially giving you extra money when they provide a company match, do not miss out on this!
  2. Emergency Fund – to cover youself for at least 3 months and to help avoid future debt.  Emergencies happen, we don’t know what or when but life is full of surprises and some of them are costly surprises so prepare for your rainy day with an emergency fund.
  3. High Interest Debt – this is your high interest credit cards or other high interest loans.  High interest debt is most often bad debt (investments that lose value or do not provide income) and you should put as much as you possibly can towards your high interest debt and pay it all off as soon as possible.
  4. Low Interest Debt – this is usually your student loans or car loans with low rates.  This can include good debt (investments that will grow in value or provide income) and bad debt.  The key is to pay off all the bad debt quickly and then pay off your good debt while you save towards your goals.
  5. Savings Goals – you should be saving towards your short term, mid term and long term savings goals simultaneously as you pay off your low interest good debt.  Do not wait to have all of your low interest debt paid off before you begin to save.  You should always be saving at least 10% of your income towards retirement and your short and long term goals regardless of how much debt you have.
  6. Retirement Account – max out what you can save in your retirement accounts each year.  Take advantage of the various tax advantaged accounts that are offered both through your company and individually by maxing out your contributions to your retirements account.
  7. Savings Goals – increase the amount you are saving.  Put all that money you were spending on debt towards your other financial goals and watch as your money grows!

Saving and paying off your debt isn’t always easy but once you are on the right track it is so worth it!   So get started, you can do this!!!


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