Should you save money or pay off debt? Can you do both?
You’re likely listening to this episode because you want to pay off debt. Imagine you're in the middle of a tug of war, but instead of teams, you've got your savings goals on one side and your debt on the other. You're pulling hard towards one side, trying to make progress, but it feels like the other side is pushing back just as hard.
It's like you're stuck in this never-ending struggle, and it can get pretty frustrating. The trick is to figure out how to manage your money just right so you're not constantly feeling pulled in two directions at once. Balancing the two is key to keeping your sanity and making progress on both your debt free journey as well as your savings journey.
In this episode, I discuss:
This episode is perfect for anyone who has asked themselves if they should save money or pay off debt.
You Might Like:
Should you save money or pay off debt? Can you do both?
You’re likely listening to this episode because you want to pay off debt. Imagine you're in the middle of a tug of war, but instead of teams, you've got your savings goals on one side and your debt on the other. You're pulling hard towards one side, trying to make progress, but it feels like the other side is pushing back just as hard.
It's like you're stuck in this never-ending struggle, and it can get pretty frustrating. The trick is to figure out how to manage your money just right so you're not constantly feeling pulled in two directions at once. Balancing the two is key to keeping your sanity and making progress on both your debt free journey as well as your savings journey.
In this episode, I discuss:
This episode is perfect for anyone who has asked themselves if they should save money or pay off debt.
You Might Like:
And when your momentum is going and you're making progress, it can be really hard to pause because you see it sometimes as a failure. When it's not a failure, it's just life, it happens. So that's exactly what we did. We continue to make our minimum debt payments, but instead of sending all of our extra money to the debt we were focusing on, we restocked that emergency fund. Hey, this is Allison, and welcome to the Inspire Budget Podcast, where we talk all things budgeting, debt and saving money. You're likely listening to this episode because you want to pay off debt. Imagine that you are in the middle of a tug of war, but instead of teams, you've got your savings goals on one side and your debt on the other. You're pulling hard towards one side, trying to make progress, but it feels like the other side is pushing back just as hard. It's like you're stuck in this never-ending struggle, and that can get pretty frustrating. The trick here is to figure out how to divvy up your money just right, so that you're not constantly feeling pulled in two directions at once. Balancing the two is key to keeping your sanity and making real headway on both your debt-free journey as well as your savings goals. Should you save money or pay off debt. Our family faced this exact same question while we were on our own debt-free journey, and many others have written in to ask me what they should do as well. Now, there are countless opinions on what you should be doing when you're paying off debt. Some people say to stop saving money altogether. Others say it's smart to continue saving and investing. But here's the truth. You can save money while you pay off debt. We did, and so many others have as well. So let's break down how to do exactly that. That's what you want, if you're here because you want to save money while still paying off debt. Well, we're going to show you how today.
Speaker 0:Now you might be wondering why does this balancing act between paying off debt and saving money even matter? Well, let's break down why you should care. First off, I don't know about you, but I really crave financial stability. By paying off debt, you're freeing up more of your income that would otherwise be eaten up by those debt payments and interest. This means that you have more money to put towards your future goals, whether that's buying a house, starting a family, putting down a down payment on a car or even investing for retirement. But here's the thing. If you ignore saving altogether while you're focused on paying off debt, you're leaving yourself pretty vulnerable to unexpected expenses, especially if you don't have an emergency fund. You see, life has a funny way of throwing us curveballs when you least expect it A car breaking down, a medical emergency or even maybe a global pandemic. Having some money set aside in savings acts as this safety net, protecting you from falling back into debt when these inevitable bumps in the road occur.
Speaker 0:And let's not forget about the psychological aspect here. Taking progress towards your financial goals, whether that is paying off debt or saving money, can be incredibly empowering. It gives you this sense of control over your finances which you might not have ever felt before. It can boost your confidence and motivate you to continue working towards your money goals and your dreams, thank you. So finding the right balance between paying off debt and saving money isn't just math. It's about creating a solid foundation for your financial future and giving yourself a little peace of mind along the way. That's why it matters Now.
Speaker 0:If you've listened to the Inspire Budget podcast before, you know that I am big on action. My goal here is for you to walk away from every single episode feeling inspired or actually having something to do, an action step to take to get you closer to your goals. So today we're going to be covering five things to do so that you can pay off debt and save money at the same time. The first one is don't ignore your budget. Now, you know I couldn't show up here on the Inspire Budget podcast I'm a budget expert, a budget lover and not talk about budgets. And yeah, I went there. But hear me out. Your budget is not a bad word. It's definitely not a consequence for some of your past money choices. We have to reframe the way we are seeing our budget.
Speaker 0:Many people link the idea of writing a budget to not getting what they want. However, a budget is simply a plan for your money. You can still buy what you want. You can still spend money on what matters most, but it all comes down to what you can afford. The goal is to not overspend and go in the negative. Now, if you haven't already, it's time to write a budget for your current pay period.
Speaker 0:Remember that learning how to write a budget that fits your life might take time, and that's okay, just like it takes time to learn how to ride a bike or learn a new language. It's going to take time and practice to learn how to write and stick to your budget, but when you make budgeting a habit, you will find ways to send extra money to debt and savings. It's going to open up and show you where you're spending money and allow you to really determine how you can pay off debt faster and grow your savings. So, before you do anything, set up your first budget. I promise that this is the key to your money success. Now, if you're sitting here thinking Allison, I don't really know how to do that or that feels very overwhelming to me. Don't worry, I have a free budget class that you can watch whenever you are ready. Go to inspirebudgetcom slash free class and I walk you through my four step process of budgeting your way to building wealth. It is incredibly popular, helpful. Thousands of people have gone through it and I think you're going to like it. Remember, go to inspirebudgetcom slash free class or just click the link in the show notes. I'll be sure to drop it there as well.
Speaker 0:If you want to pay off debt and save money at the same time, then the second thing you're going to want to do is set up an emergency fund Before you even think or dream about sending extra money towards your debt payments. You will want to save an emergency fund first. Setting aside money in an emergency fund, even if it's just $1,000 per person in your family, will keep you or will help you not accrue more debt when you're on your debt-free journey. Because somewhere along the way something is going to go wrong when our family was paying off debt. We were faced with a major car repair. My husband's transmission completely died and we had money in savings about $4,000 at the time in savings and we had a choice to make. We could either drain most of that savings and fix the transmission, have it completely rebuilt, or we were going to have to go further into debt and trade in his car and get a new one. At that point in our journey I was so thankful to have an emergency fund, because that setback of taking on tens of thousands of dollars for a used car to replace his would have been a really a really tough kick to our motivation. So having that emergency fund in place helps you not have to go into debt when life happens. So whether you make an unexpected run to the emergency room or your pet needs surgery, both of these things have happened to us. Life will happen whether or not you are financially prepared. So having money in a savings account for these emergencies and major unexpected expenses will help keep you from taking out another loan or putting large expenses on a credit card. The goal in all of this is to get out of debt, not go back into it.
Speaker 0:My third tip for creating a balance between paying off debt and saving money is to start saving money for what you know you are going to need. While you're sending extra money to debt, it is so important for you to still save money for things that you know are going to be coming up in the future. For instance, it's a great idea to set aside money each month for Christmas or holidays. This way, when December rolls around, you won't have to go into debt to buy gifts. To help you save money while paying off debt, all you have to do is just add any type of expenses that are coming up in the future as line items in your budget.
Speaker 0:Here's an example of how our family does this in our own personal budget. Every January, we get a bill in the mail for our homeowner's association dues, our HOA dues. It is $1,500. That's a lot of money to me. I know that if I'm not prepared for that bill to come in my mail, I'm gonna be pretty upset whenever it hits because I'm going to have to go into my emergency fund and use that money. So instead of being caught off guard by our HOA dues and having that big, major expense hanging over our heads, we have set up an automatic transfer of about $130 every month into a separate online high yield savings account. This way, when January rolls around, that bill comes in the mail, we have all of the money we need to cover our yearly home expenses. This means that we have less stress. We feel like we are more prepared, and we could easily do this if we were also paying off debt at the same time. That's how you make it happen. You send extra money to your debt payments, but you also intentionally start saving money for things you know you're going to need in the future.
Speaker 0:Tip number four when it comes to paying off debt and saving money at the same time is to pause your extra debt payments when emergencies happen. Now, we all know that emergencies are going to happen. You should expect them. There will be plenty of times when you will need to use your emergency fund in life.
Speaker 0:I know it happened to us While we were working to pay off debt. Our dog, our beloved dog, who has since passed away Joey needed emergency surgery to have one of his legs amputated. This was a major surprise to us and definitely was not cheap. Thankfully, we had $4,000 in our emergency fund at the time, which covered his entire surgery. I was so thankful that we had money to cover this unexpected vet visit. However, I'm not going to lie to you. It was very frustrating because I realized and my husband realized too that meant we would have to pause our debt pay off progress from that moment forward so that we could restock our emergency fund. And when your momentum is going and you're making progress, it can be really hard to pause because you see it sometimes as a failure. When it's not a failure, it's just life, it happens. So that's exactly what we did. We continued to make our minimum debt payments, but instead of sending all of our extra money to the debt we were focusing on, we restocked that emergency fund. As soon as our emergency fund was back to where we liked it, we started the process of paying off debt again. The only thing we can expect in life is that unexpected expenses will pop up. Your savings account will be put to use while you're paying off debt. Just know that this is completely okay.
Speaker 0:My fifth and final tip for you is one that is pretty controversial if I do say so myself, but I'm just going to go out there and say it. Remember these are all my opinions. My hope is that the Inspire Budget Podcast helps you learn more about money and look at all of the ideas and options and choose what works for you, but my opinion I stand by it is to continue to contribute to retirement even while you're paying off debt. When it comes to investing, the sooner you start, the better off you'll be. Many people ask themselves this same question should I invest while paying off debt? And there are so many opinions around this and, to be honest, it's going to depend on your unique situation. I know for our family, we did not invest while paying off debt and it is one of my biggest money regrets, and we also bought a portion of a time share. So we have some big money regrets here, and not investing or waiting to invest is at the top of that list.
Speaker 0:Now it is important to take into consideration how many years you have until retirement, how much debt you have, as well as if you have any high interest debt. No matter what, it's important to know your options, so let's break them down for you. Option A which is not my favorite, but I'm going to throw it out there is to just pay off all of your debt first and then invest. This is a really great option for anyone who has a smaller amount of debt and can pay it off quickly, like within a few months three months max If that's you. You have a couple of credit cards floating around. Knock them out and then focus on investing. However, I know for many people we have car loans, student loans, just a lot more debt hanging over them. If that's the case, let's talk about option B. Option B is to invest up to your 401k match, if you receive one, and then send the extra money to debt. Your match that you receive at work, if you get one, is like free money. Meeting your match allows you to invest as well as have your company contribute to your retirement account. So option B is to invest up to your 401k match and then focus on paying off debt. The third option, option C, is to pay off all of your high interest debt first, then invest as you pay off your low interest debt. If you have any credit cards or high interest debt think 15% or more, maybe even 10% or more then you could consider paying off that fast and then start investing, and really invest, while you are paying off those lower interest loans. Option D is to do both.
Speaker 0:If retirement isn't far away, then don't sleep on your investment opportunities. It is so important to have your money in the stock market as long as possible so that it can compound and grow by the time you're ready to retire. So if you are older and you feel like, oh my goodness, I have this debt, but I also have not saved much for retirement, then you can find a way to do both. No matter what you choose, just remember that you can always change your mind and pivot. There's no doubt about it. You can save money and pay off debt at the same time. In fact, I recommend you do just that. Saving money while paying off debt will prepare you for any unexpected expenses that will come your way. It will also help you not go further into debt when life throws you a curveball.
Speaker 0:Just to recap, here are the five tips for saving and paying off debt at the same time. First, don't ignore your budget. Next, set up an emergency fund as soon as you possibly can. It's going to help you not go further into debt. Third, start saving for what you know you're going to need, so that those expenses don't catch you off guard. Fourth, pause your debt payments when emergencies happen. Use your emergency fund and then restock it as quickly as possible. And finally, continue to contribute to retirement even while paying off debt, and we covered four ways to make that happen.
Speaker 0:That is a wrap for today's episode. I hope you found these tips on saving money and paying off debt at the same time helpful and actionable. If you enjoyed today's episode, please take a moment to follow and subscribe to the podcast and leave us a rating or review on your favorite podcast platform. Your feedback helps us improve and it helps us actually reach more listeners just like you who are on their journey to financial freedom. And don't forget to share this episode with your friends, family or anyone else who might benefit from this information. Thank you for tuning in and until next time, keep working towards your money goals. I'll see you next week. Same time, same place. Bye.