What’s more important to you? Saving as much money as you can or paying off debt as quickly as possible?
Most of us have been saving more money than usual because of quarantine. Unless you have been blowing your money on takeout or online shopping, the majority of us have been saving money because we’re not getting our hair/nails done, we’re not going out to eat, we’re not hanging out with friends as much either. The current global climate has shown us that nothing is promised, and our lives can drastically change within days. I’ve always been team save money but some people prefer to pay off debt aggressively.
In this blog post, I’m going to discuss some different things to consider when you’re deciding what to pay first. Every situation is different, and you should always consult your accountant or your personal financial advisor before taking any financial advice. But generally, the advice I’m going to share is a good path to take to maximize your income.
Right now, 47.5 million Americans are unemployed & 69% of Americans don’t have $1,000 saved. As someone who is a part of the 31% of Americans with more than $1,000 saved, I’m going to share some valuable tips that I’ve learned about managing money.
Every time you make money no matter how small it is, transfer some money into your savings account (preferably a high interest yielding account). I aim to transfer at least 30% of my earnings to one of my savings accounts. I personally have different savings accounts for different goals. If you’re not making enough money to set aside 30%, start with a lower percentage. If you think you can’t set aside any money at all then I suggest you lower your expenses and pick up a side hustle. (For side hustle ideas, click here). In 2020, it’s important for everyone to have multiple streams of income. All the job loss we’ve seen has proven that no one stream of income is guaranteed. Having a backup source of income will help you feel secure. I recommend having at least 4-6 months of your bills and expenses saved up. Therefore, if there is another pandemic or an emergency arises, you’re covered while you get yourself together.
After you’ve saved a portion of your income, it’s important to pay off your debt with the highest interest rates. For most people, that is your credit cards. Credit cards have some of the highest APRs out there. The average credit card APR is 18%. Your student loan, mortgage, or auto loan debt usually has a lower interest rate than your credit card does. The average student loan, mortgage, or auto loan APR is under 10%. So, when it comes to debt, I say pay off your credit cards before anything else. I’m grateful for the points, cashback, and the loan, but I do not want to be paying these creditors more than I have to. There are various benefits to having credit cards and having a great credit score, so don’t close accounts because your debt is overwhelming. Instead, create a plan for your finances and manage them better. Full-time Forex Trader & my personal financial guru, Hansome Kelly has a wonderful financial game plan bundle that includes spreadsheets to help you manage your finances better.
Debt can be overwhelming. The first time I laid out my finances into a spreadsheet, I felt anxious. But to become financially free, you have to know your numbers. If you don’t identify the problem, you can’t fix it. As someone who graduated with over $30,000 in student loan debt, I prioritized learning about personal finances and getting my debt paid off in a timely manner. I made a plan and I’m on track to be out of student loan debt very soon. Investing is also very important. However, I’ve never seen the point in buying a bunch of stocks if I’m in a lot of debt and my net income is negative.
The only exception I do believe in is investing in a retirement fund. Especially if your company will match it because those take so many years to grow and you can receive very nice tax breaks and basically free money through your employee match. However, I personally am more concerned with creating multiple streams of income than buying a bunch of investments that I can only put a couple of dollars into. The wealthy have at least 7 streams of income and I plan to be wealthy. I’m a strong believer in taking advice and following the example of people who have achieved what you want to achieve.
After you’ve hit your savings goals, your cash flow is coming in and your net income is where you want it to be, I highly suggest looking into different investments. Investing money is when you use your money, or capital, to buy an asset that you think has a good probability of generating your more money over time. There are so many different investments that you can do. You can invest in stocks, bonds, mutual funds, cryptocurrency, real estate, etc.
Overall, I believe saving money should always come before paying off debt or making investments. You should also always be spending less than you’re earning. Think of saving money as the foundation your financial house is built on.
If you have any more financial tips, comment them below! Let’s share the knowledge.
If you want to improve your money mindset, read two of my FAVORITE books about money. These two books are life-altering. You will not think of money the same after reading these.
You Are a Badass at Making Money: Master the Mindset of Wealth by Jen Sincero
Money Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins