When it comes to managing your money, one common dilemma is deciding whether to save, invest, or pay off debt first. Each option is important, but the right choice depends on your financial situation. Understanding how to prioritize can help you make the best decision for your future.
Before you begin investing or paying off debt, it’s important to create an emergency fund. Unexpected expenses like medical bills, home or auto repairs, can derail your financial plans. Aim to save enough money to cover six to twelve months' worth of living expenses in a separate account.
If you have credit card repayment left or loans with high interest rates, paying them off should be your next priority. The longer you carry high-interest debt, the more money you'll lose in interest payments. Focus on paying off the most expensive high debt first while making minimum payments on the rest.
Once you have an emergency fund and debt under control, start investing. Contribute to a 401(k) if your employer offers a match—it's free money! Consider opening an IRA or a brokerage account to grow your wealth over time.
For lower-interest debt like student loans or mortgages, you can balance debt repayment with investing. Since investments have the potential to earn more than the interest rate on these loans, it may make sense to invest while gradually paying off the debt.
There's no one-size-fits-all approach, but prioritizing emergency savings, eliminating high-interest debt and investing wisely can set you up for financial success. We can help you make a personalized financial plan to maximize your savings, investments and debt repayment strategies.