The Better Budgeting Podcast
The Better Budgeting Podcast is your go-to resource for mastering your finances without the stress. Hosted by Danielle Reese, this podcast breaks down budgeting, saving, and smart spending into simple, actionable steps. Whether you’re tackling debt, building wealth, or just looking to make your money work smarter, we’ve got expert insights, real-life success stories, and practical tips to help you take control of your financial future. Tune in and start making your budget work for you—without sacrificing the things you love!
The Better Budgeting Podcast
Should I Stop Investing to Payoff Debt?
Discover how to achieve financial freedom and manage debt like a pro in our latest episode of the Better Budgeting Podcast. Are you wondering if you should stop investing to pay off debts? We tackle this common dilemma by examining the implications of altering your investment strategy, particularly with pre-tax contributions like those to a 401k. If you're eager to take control of your finances without waiting for the new year, you'll find inspiration in our discussion about exciting opportunities, including the fall promo for our Better Budgeting Playbook and the No Spend November Challenge in the Financial Freedom Society. You'll leave with actionable strategies to maintain financial balance and make informed decisions on your path to financial success.
Navigate the complexities of debt reduction and investment strategy with ease as we guide you in using essential online tools to streamline your financial efforts. Starting with Vertex42.com's debt reduction calculator, we walk you through selecting the optimal debt payoff method and emphasize the importance of tracking your debt-free timeline. Then, shift gears to explore the potential growth of your investments with Investor.gov's compound interest calculator, allowing you to compare debt reduction strategies with investment opportunities. Finally, unlock the secret to a secure retirement by redirecting funds from debt payments to retirement savings, capitalizing on the power of compound interest for a prosperous future. This episode promises practical insights and a clear roadmap to help you achieve a debt-free, financially secure life.
Danielle is a money coach helping women and couples who have been trying to figure out their finances FINALLY create a clear plan so they don’t have to worry about waiting to refill their bank account the next payday.
She is the founder of The Financial Freedom Society on Facebook and her signature money coaching program, The Better Budgeting Playbook. You can sign up for her newsletter by clicking here.
Take the first step towards financial freedom and sign up for a complimentary assessment call with me, Danielle Reese.
Grab your copy of "Let's Talk Groceries" Your Guide to Reducing Your Grocery Bill" This is an ebook with over 30 pages of tips, tricks, and guidance to help you save hundreds on your grocery bill!
Sign up for the early release of The Better Budgeting Blueprint for $99 with a $50 refund once completed. The release is scheduled for April 1st 2025.
You can connect with her on Facebook or Instagram.
Hello and welcome to the Better Budgeting Podcast. I'm your host, danielle Reese. I'm a money coach and the founder of the Better Budgeting Playbook, and this is my one-on-one coaching program for women and couples who have been trying to figure out their finances, finally create a clear plan so they don't have to worry about waiting on payday anymore. I became a money coach in 2020 after paying off over $60,000 in debt, rekindling my marriage, becoming financially free and wanting others to experience the same. If you'd like to work with me, you can check out the link in the show notes there. Also, we have the Financial Freedom Society on Facebook. It's a free Facebook community focusing on debt payoff, saving strategies, budgeting and money mindset. You can find the link to that community in the show notes as well. Hey, welcome back. Can you believe it? It's October 11th. Wow, things are really moving along here. Okay, we are being busy, busy bees over here in the Better Budgeting Playbook, specifically Danielle Reese Coaching. We've got lots of things going on right now. If you didn't know it, we have a fall promo happening right now. So if you sign up for coaching between now and October 20th is $100 to start. That's it. Your very first month is only $100. And what happens is you get all of it just like a regular coaching, if you paid your investment in full. So I'm offering this as kind of like my Black Friday deal. That's what I offered last year for my Black Friday deal. However, I said I want to get people started right away, so we have that option available. You can go in the show notes and click to apply to the Better Budgeting Playbook. We'll get you started, we'll get you rolling and you will be so amazed how much progress you can make between now and the end of the year. You don't need to wait until the end of the year and you're setting up a resolution again that you're going to be better with your finances again. No, you don't need that. You need to start now. Take action right now. So that's a really awesome deal in order to get into the playbook.
Speaker 1:And then something fun that we have going on over in the Financial Freedom Society, which is my free Facebook group, is we're doing a no spend November challenge. Now, we are not doing the whole month of November. Unless you want to do the whole month of November, that's perfectly fine, but we are going to do the first three weeks of November. That way, you're finishing up right before the holidays, right before Thanksgiving, because, listen, I know somebody's gonna forget to buy the cheese for the mac and cheese and you're gonna have to run out and grab that thing. Or somebody is going to burn the turkey and you guys have to reset. All right, I am going to take that objection away and say, listen, we are only going to do the first 21 days of November and we'll go from there. Okay, this is going to be a really great, interactive, just challenge for you. I'm going to be sprinkling in all month long, different ways to help you with your mindset, with money, different ways to save with your money, different ways to just live without having to spend your money all throughout the month of November. So you're going to want to go and get into the Financial Freedom Society.
Speaker 1:There are questions to answer, by the way, to get in. The reason I ask those questions is it helps me really understand who people are and what they're looking for. So if you're looking for debt payoff, if you're looking for saving, that is the place to go. That is the things that people say the most when they answer those questions is I need help with those things. So that's the content that I am posting. If it switches one day and it's like, hey, I want help figuring out how to crochet, I'll be like this ain't a place for you, okay, because I do not know how to crochet.
Speaker 1:So let's get into today's topic, and that is should I stop investing to pay off debt? Now, this economy squeezes every little penny out of us and I've been getting this question a lot lately. I actually had this question in the last three weeks. I've had it happen four times, which is incredible. It just tells me like people are either following the news or they see some trend or something. Well, I don't know what that is, but People have been really asking me this a lot is should I stop investing to pay off debt? And you know, if you've listened for a while, that those questions always turn into podcasts because I need to go into a deeper level. So there is a level of mindset that needs to be addressed with this question Should I stop investing to pay off debt? You can't just stop investing and get that money in your paycheck without a plan. It's a no-no. You have to make a plan. So first is the behind the scenes stuff. Okay, this is the technical things that we need to think about.
Speaker 1:The bottom line if you stop investing especially pre-tax dollars like a 401k or a 403b any kind of retirement plan through your employer is typically going to be a pre-tax dollar you will have a higher taxable income. If you're in the US I'm not speaking to any other country, but the US specifically for this, because I don't know what those are like in other countries okay, but this means that if you make $100,000 a year and you contribute $5,000 a year into retirement, your taxable income is only $95,000. So you're only taxed on $95,000 instead of the full $100,000. They say, hey, you went and you put that money in a retirement account. That's pre-tax dollars. You don't get taxed on that Now. You will get taxed on that when you start to take it out at retirement age. That's a whole nother thing for a whole nother episode. But just know that it is really going to change your taxable income for that tax filing year.
Speaker 1:The next is the variable of you you. The question is are you going to stick to paying off debt? Are you going to stick to paying off debt or will you just absorb that extra cash into your spending? If you are contributing $500 a month into your investments, your 401k, your 403p, your retirement accounts. Are you going to take that money and actually apply it to debt? Or, if you get $500 back into your bank account, are you going to end up spending it? Because, let me tell you something too many times have people done that and maybe you don't even relate because we're talking about investing, but let me ask you when you get a tax refund, when you get a bonus at work, when you get a raise, does that money just disappear? Probably more than likely. If you're listening to this podcast, you either really love finances or you're really struggling with finances, so I'm going to guess that those things just disappear for you. So my question is what's to say that this $500 just comes back into the paycheck? What are you going to do? Are you going to just let it squander away and just dissolve into your everyday spending? Let's not do that. If that's the case, we're going to go ahead and just keep investing.
Speaker 1:Now, if you're like Danielle, I am that type of person where I just don't know where things are going and I don't know why they're going wherever they're going, then you can sign up for the Better Budgeting Playbook. I'd be happy to help you. Actually, let me just take a step further. Just send me a message. Oh my gosh, I love connecting with all of you and learning about your stories and your finances and answering those questions. Just chill, like I'm a real person that enjoys finances. So I love helping people do that.
Speaker 1:So if you have a question about your finances and if you should stop investing or pay off debt, let me know. Let me know. And if you have a question of, like Danielle, I really need your help, can you help me? The answer is always gonna be yes, and people that need help with their finances are people that have tried over and over again. If you have tried over and over to get a budget right and stick to it, if you have tried to get out of debt for more than six months and it's just not budging, then please send me a message. I'd love to help you. You can join the Better Budgeting Playbook.
Speaker 1:That system is proven to work for over 100 clients. At this point, I think we're actually cresting on to like 150, close to it, but is working. It works really, really well. So if you need help with your finances, please don't hesitate to reach out, but ultimately, you need to have a plan for this money that is going to come in, if you are going to stop investing. This is a big deal. Okay, this is a really big deal. This is going to affect your life 15, 20, 30, maybe even 40 years from now.
Speaker 1:So you need to make sure that this is the right move and that you are going to follow through with it, because if you don't follow through with it, you are wasting away possibly hundreds of thousands of dollars, and we ain't playing that game. No, no, no, no. I want you to be retiring comfortably, but we also need to be smart and say, hey, like, is it right for me to pay extra on this debt at this moment? So first thing that we're going to do is we are going to weigh the pros and cons. You know that I was coming here to do that.
Speaker 1:So, first thing, first pros you get stuff paid off faster fantastic, I love. Get rid of the debt as fast as possible, all right. Also, it gives you some breathing room. Right, when you get rid of debt, you now have cash flow which gives you breathing room, which can help you get to those goals of feeling that financial freedom. And the other thing is it can reset the slate. It can totally reset the slate and that's exciting. Like imagine if you had no debt payments, or even half the amount of debt payments that you have. You'd probably be feeling really, really well right now. Right.
Speaker 1:The cons, however, is you are going to lose out on compounding growth. There is no ifs ands or buts about it. It is going to be happening. You are going to lose out on thousands, if not hundreds of thousands, of dollars. All right, so you need to take that into consideration when you go and make this move. Is it the right time for me to stop doing this? Because I need to get to retirement early or I'm getting close to retirement? These are things you're going to want to figure out, all right.
Speaker 1:The other con is that you're going to want to figure out all right. The other con is that you're going to pay penalties and taxes. So penalties is typically 10 percent. Taxes is your tax bracket. You pay the penalty when you get the money out. You pay the taxes whenever you file for the next year. So if you are looking to take out a hundred thousand dollars, no, right off the bat, ten thousand, $10,000 of it you're not getting. You're actually getting $90,000. And then you're going to get taxed on $90,000 at whatever tax rate you are at 12%, 22%, 35%, whatever it is.
Speaker 1:The other con is that this is a quick fix and there is possibly no behavior change when this happens. Now this is where the seriousness needs to set in. Have you ever heard the stories of the people that win the lottery and within five years, they're going bankrupt? And within five years, they're going bankrupt, like they literally won millions and millions of dollars and they've either committed suicide or they have squandered all of their money and they have nothing and they're bankrupt. This is kind of the same behavior where you can get a lump sum of money and all of a sudden you think of all the things that you wanted to do with it. You're like, yeah, we're gonna pay off this debt, and then you don't. Or you get this money and you pay off the debt, but you don't change your behavior with how you manage your current income. That's a problem. That is something that is needs to be addressed, because if you don't address it, you're going to waste away all of that money and then get back into debt. And it's not even about, like this example of investment money, like 401k money. It is also the balance transfer cards, the personal loans. How many times have you gotten those things to consolidate debt and you just rack up cards again? We've got to change the behavior. So if you aren't going to change your behavior and how you manage with money, this ain't it girly, this is not the move right now. I'm not saying never, but right now this ain't the move. Right now, I'm not saying never, but right now this ain't the move.
Speaker 1:This is something that I walk my clients through and we take some time to really evaluate all of it. We evaluate the penalties, we evaluate the taxes, we evaluate what that's going to look like financially on the home front, like the day-to-day finances. We talk about behavior. We talk about all of these things. So you need to have somebody in your corner to help you through this. Okay, please don't go about this on your own. Getting someone like me who is a financial coach in your corner is going to be great. Also, I have my clients work with a CPA and a financial advisor. When we're starting to talk about this stuff, this is not a one-man-stop-shop type of conversation. We've got to bring in the whole team to make sure that this is a good move.
Speaker 1:Now that I have given you all of that, I'm going to give you the step-by-step process to figure out if you should be investing or paying off debt right now. And let me tell you, it probably is going to be super duper helpful for you to listen to this through once. Then come back to this section and like pause and start and pause and start to get through each of these steps. But I feel like I can definitely describe to you how this is going to work and you're going to ace it perfectly and you're going to figure out and know exactly if you should be paying off debt with your investment money or not. So let's get into this.
Speaker 1:The first thing I'm going to have you do is go to vertex42.com and you're going to download a debt reduction calculator. You can download it on Google Sheets or in Excel, whatever you want to do. It is a little bit of a messy website, so make sure you're downloading the right thing, because there's lots of ads everywhere. But you want to use this debt reduction calculator. I use this with all of my clients. It's a really great way to put your debt in and figure out how do I pay it off how much All that stuff. So you're going to get that. Once you have it downloaded, you're going to put all of your debt information in that first box. It is going to be your minimum payments, your interest, your balance and the title of every debt that you have. I think it can only take 10, but put them in there. By the way, the instructions are on the page as well, so if you need help, you can follow those instructions, but we're going to walk through this.
Speaker 1:Next is you need to figure out how much extra you are putting on debt right now. So if it's nothing, you put a zero. If it is consistently $100 a month, put $100 extra in there. So that's really, really important to do what you're currently doing right now. We got to get that number and then, underneath that, you're going to pick a method of debt payoff. I really love just giving it the snowball. You're going to get nice quick wins Again.
Speaker 1:If you're going to be taking money out of your retirement and your investment accounts to pay off debt, you want to do that as quickly as possible. Right At the bottom of the page it's going to say total interest paid. That is how much interest you were going to pay over the life of becoming debt-free. It is really important to write that number down. Also, how long it's going to take you to be debt-free, whether it's two years and one month, five years and 10 months, whatever it is, I want you to write it down. Now you're going to go to a different website. You're going to go to investorgov and you're going to use their compound interest calculator Really, really simple to use. By the way, I will put these websites in the show notes this week.
Speaker 1:On that website, the calculator that you're going to use it starts with step one being your initial investment. That's going to be zero. We're going to start with zero. I don't care what you already have, I want it to start at zero. Okay, Monthly contributions it's whatever you are putting in right now. So if you are investing $300 a month currently, then you're going to put $300 a month in that box.
Speaker 1:Okay, length of time here's where the math comes into play. You're going to put how long it's going to take you to pay off all of that debt. So, whatever is in the debt reduction calculator, if it says four years, that's what you're going to put in there. Four years, that's what you're going to put in there. So the way that this is going to be reading is that for four years you are going to be investing $300 a month, $400 a month, whatever you're currently investing. Then for the estimated interest rate, I like to use 8%. The S&P 500 is typically 10% over the last 100 years, average 10%. So I like to use eight, just to be safe. Now we're going to hit calculate. The number that pops up is how much money you are going to have invested in that short period of time while you're paying off debt. That's really important to know because this is a two-step kind of math problem.
Speaker 1:For this scenario, now I want you to take your age plus however many years it's going to take you to pay off all of that debt. So if it's three years and you're 33 years old, it's going to be 36. Okay, using that example, now I want you to take your retirement age, the age that you want to retire. So let's say it's 65 and subtract that new age number, so 65 minus 36. That's 29 years. I want you to come back to the compound interest calculator and we're going to say our initial investment is zero.
Speaker 1:Our monthly contribution is now how much we were contributing. So let's for the same example. It's $300 plus how much you were paying extra on debt every month. So you could say all right, I was paying an extra $100 every month towards debt, plus I am paying $300 automatically out of my paychecks. Now that's $400. Or since you're debt free, now you could say my new monthly contribution will be $800 a month, $1,000 a month, whatever it is. Because you're debt free, you have all this extra cash floating around now. So whatever that number is for your monthly contribution let's say it's $1,000, you're going to put it in there, and then the length of time is going to be the new age.