Striking the Balance between Debt and Saving

A few weeks ago, I offered a free download of my latest eBook, “The Good Steward’s Guide to Finding a Fiduciary Adviser.” To get the offer, readers needed to answer a simple question: “What is your greatest financial challenge?” I asked because, sometimes, important questions are left unspoken because an individual a) doesn’t know whom to ask, or b) isn’t sure whom to trust.

One reader who downloaded the eBook said his greatest financial challenge was balancing between saving for retirement and paying off short-term debt. That’s a problem facing a lot of people these days – particularly those with student loans, or those who are managing an avalanche of credit card debt. (See this recent article on where I discuss saving for retirement!) Retirement can seem ephemeral, while short-term debt is firmly in the here and now. Is it really possible to balance the two?

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In today’s blog, I’m going to share some high-level strategies for managing short-term debt AND saving for retirement. While every situation is different, you may find some ideas you haven’t yet considered. And, if you’re reading my blog, it’s likely you’re ready take the next step toward achieving your financial and life goals. Here are five thoughts on balancing retirement and short-term debt to get you started:

  1. Visualize your future. Make retirement seem more concrete by setting some goals. At what age do you want to retire? What do you plan to do in retirement? Where will you live? What will your lifestyle be like? Once your spending and debt levels are under control, start saving at least 10-20 percent of your income toward retirement. Understanding the context in which you make financial decisions, and visualizing the impact of your decisions, can have a major impact on your success.
  2. Look at how, when and where you’re spending money. You may not have a formal budget, but if you’re like most people, you do have debit and credit card statements. How many times did you eat out last month instead of cooking dinner or bringing your lunch to work? What other splurges did you have? How often do you buy on impulse, and why? Understanding what motivates your spending is the first step in creating a plan to manage it.
  3. Stop any money “leaks.” Now, this one takes discipline. Once you identify any unnecessary spending, take steps to curb or stop it. Take any extra cash (even if it’s only a few dollars), and put it in an emergency fund. Ideally, you should save about a year’s worth of expenses, but do what you can – it will add up before you know it. Congratulate yourself every time you add to your emergency fund, and pledge to do it again and again. Always pay yourself first!
  4. Take advantage of all of your benefits. Many companies offer a 401K match, as well as other kinds of programs that help employees save money, and in some cases, lower their taxable income. Are you making the most of your benefits? If not, make it a point to educate yourself. Talk to your human resources department and get help. It’s bad enough to lose money, but even worse to leave available money on the table.
  5. Start tackling your debt. If credit cards are a problem, pay off the ones with the highest interest rates first. If your student loans are causing your money crunch, look at the interest you’re paying. Is the rate low? If so, you may be able to invest any excess funds you identified in your spending plan in a way that will pay you a higher rate over time. Try to pay more than the minimum each month, and try not to accumulate more debt (like buying a home or a car) while you’re in “pay-off” mode.

While these five steps may look easy, we all know that balancing debt and saving for retirement can be daunting. That’s where a fee-only, fiduciary adviser can help. If you don’t already have an adviser, download my eBook to learn how to find an adviser you can trust. And, as always, if we can be of assistance, please feel free to contact us.

What other financial challenges keep you up at night?

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