As we often talk about here on the
Veitengruber Law blog, paying down your debt should be a primary concern for anyone interested in financial freedom. It's impossible to have any kind of financial stability if your debts outnumber your savings. Many people, however, have become so focused on getting rid of debt
fast that they completely ignore their depleted savings account.
The number one reason why you should keep adding to your savings account even as you pay down your debt is this: the money you put toward savings and investments will make
more money.
Naturally, the logical argument is that long overdue debts will end up
costing you more money due to accruing interest and late fees, so it may seem like it's all a wash. That's why it's important to strike the right balance.
Telling you to find the right balance is easier said than done, and we realize this. That's why we have a few pointers to help you get started.
- Make saving a priority. Rather than pushing savings all the way down to the bottom of your priority list, set up auto-payments so that part of each paycheck goes directly into savings.
- Get more bang for your buck. It's true that most local brick and mortar banks offer pitifully low interest rates on savings accounts. Luckily, the great big world wide web is home to some much better options, like MySavingsDirect, Synchrony Bank and Ally Bank.
- Cut corners where you can. Right now, it's time to really think about where your money goes. In order to pay off debt and build savings simultaneously, your lifestyle may need a little tweaking. No more than half of your pay should go toward living expenses, and this includes your rent or mortgage payment. If the numbers simply don't work out, seriously consider one or more of the following:
Find somewhere less expensive to live.
Stay with friends or family on a temporary basis.
Refrain from acquiring any new debt until your current debt is paid off.
File for bankruptcy.
- "See the forest for the trees." In other words, don't forget to keep your eye on the bigger picture. For you, that means after your debt is paid off, you won't be starting at the bottom all over again in an attempt to build up your savings. By working in moderation to both pay your debts and increase your savings, you'll be setting yourself up for a much better outcome than if you simply plowed through all of your debts with nothing to show for it.
- Think positively. It can most definitely feel impossible to get out of the red and into the black, especially when one contemplates doing both at the same time. However, your mental attitude can be the tipping point to success or failure in any situation. Whether your trip toward financial stability involves filing for bankruptcy or simply avoiding any new credit card debt, keep your eye on the prize. It will be so, so worth all of the effort.
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