For many people, building up savings and paying down debt are among their top financial goals, but is it possible to accomplish both simultaneously? Thankfully, these priorities can be achieved with good financial habits and a personalized money management strategy. Here are several tips for balancing these financial responsibilities.
A budget will be an important tool when it comes to saving money for the future and decreasing debt. Begin by determining how much monthly income you earn and what this money is spent on each month. Add up general expenses and how much debts are costing monthly, and rank them from the highest interest rate to the lowest. With a better understanding of income and expenses, it can be easier to pinpoint which items to cut and free up more money to put toward these goals.
If there is not much wiggle room in the budget, there may need to be some cutbacks to free up more income. Can any streaming services be canceled? Can more nights be spent cooking instead of food delivery? These are the kinds of questions to ask as you comb through a budget and search for line items that can be reallocated for debt payments and retirement savings. Using a budget worksheet or tracking expenses with help from a budgeting app can make this process easier.
Reducing debt can feel overwhelming, but even little steps can have a big impact. Using the list of debts from the highest interest rate to the lowest, pay off the highest-interest loans and credit cards first since they cost the most in borrowing costs. If possible, pay more than the minimum amount each month. Once the credit card is paid off, the monthly amount used to pay it off can be put toward the next highest debt. If a small balance is left on a debt with a lower interest, you can make an exception to the top-down rule. Eliminating a debt, even a small one, can offer a great confidence boost and the motivation to keep going.
Once a budget is created, it’s time to set spending limits and reduce non-essentials as much as possible. Variable expenses like entertainment, gifts, and restaurant dining could be reined in to ensure there are funds for your specific financial goals. One method to keep spending in check is setting up a checking account for variable expenses only. This can help prevent from going over or instantly borrowing funds from other line items. Once the money is gone in the variable expense account, no further spending should be until the following month.
Trying to tighten a budget may feel too restrictive, so it may be helpful to consider ways to bring in more income, whether a part-time job or earning extra cash. There are various ways to earn money toward your goals, including pet sitting, freelancing online, or selling items you no longer need.
Once you’ve identified the amount of money you’d like to put toward savings and paying down debt, automating payments on loans and credit card payments can make things easier. It can also be a good idea to set up a direct deposit to a savings account or automate 401(k) plan contributions so a month is never missed. This process can help eliminate the steps that manual payments require, so you won’t have to remember to set up a bill payment.
If you need help creating a strategy to successfully build your savings and pay off debt, a financial professional can offer expert guidance and discuss ways to accomplish these goals. Together, you can build a personalized financial plan, explore different solutions like annuities and life insurance, and map out the steps you can take today — and down the road — to stay on course financially.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals who are insurance licensed will be paid a commission on the sale of an insurance product.