Do I Pay Off Debt Before Investing/Saving

Alright, so you’ve decided you’re going to get into better financial shape this year. You spent some time breaking down your budget and expenses, and now you have a general idea of your cash flow. The question is, where do you put that money? 

If you have debt, many people will tell you to focus on paying that first. But you also know that saving money and investing in your future is important. So which do you do? 

There are some pretty divisive opinions on this subject matter. Many are hardcore advocates of paying off all debt (except your mortgage) before you worry about amassing savings and creating an investment portfolio of any kind.  

Others will say it’s more situational, depending on the return you can get, the amount of cash you need on hand, and more. 

One thing everyone should do first is establish an emergency savings. At the very least, you should have $1000 set aside, only to be used under necessary circumstances. Depending on whether you’re financially responsible for others and/or how stable your job is, you may even want to save up a month or two worth of income. 

Once you have a little cushion, it’s time to make some money moves.  

Paying Off Your Debt First 

Debt is something best avoided. It’s essentially the result of spending money you don’t have. In some cases, you don’t have a choice. You may be purchasing a house or putting yourself through school or suddenly in need of a new, reliable car. 

The more debt you have, the more impossible it feels that you’ll ever pay it off. But it’s important to believe you can and will pay it off. You just need a little time and some extra effort. 

The sooner you pay off debt, the more money you’ll save yourself in the long run. High interest rates can result in you paying nearly double the cost of something. In addition to saving you money, removing debt payments from your budget will free you up and empower you to do more with your money. 

Paying off debt fast is really never a bad idea. 

Saving and Investing 

Saving and investing your money is something everyone should aspire to, regardless of financial standing. Even someone with a modest income can turn their earnings into something far greater. The earlier you start saving, the more return you’ll see. 

Believe it or not, putting money away into a higher interest account like a Roth IRA can feel very rewarding. Watching your money grow from investments makes you feel accomplished. Knowing that you have assets is reassuring. 

And that’s great. As Dave Ramsey says, “money is emotional”.  

But if you have high interest rates and/or a lot of debt, the money you’re losing could likely outweigh the money you’re saving and investing. There may be situations where you can earn a return rate that’s higher than the interest on your debt. There are also situations like 401K matching, where your employer contributes to your savings. 

In these cases, it might make sense to put a bigger emphasis on saving. 

If you’re self-employed, and you have some overhead, it can be a good idea to keep liquid assets on hand. In that case, some extra savings may be necessary. 

Which is Right for You? 

The best way to get a proper perspective on your financial situation is to speak to a professional. They know the markets, they’ve learned the best practices, and they’ve worked with other people in your situation. A fresh perspective can open your eyes to what you’re able to do, guiding you to the best course of action. 

At KB&P Partners, we put the needs of our customers first. We’re wholly independent, certified financial planners. We hold no affiliation with third-parties, so we won’t try to sell you on services you don’t need. We simply want to help you make the most out of your money. 

If you’re looking for a financial adviser in the Springfield, Ohio area, contact us today. 

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