Finances are a part of each of our lives, and at some point, we all come across financial advice. No matter how good the advice, sometimes we can find ourselves wondering, “Is what worked for you ideal for me considering my circumstances?” There’s no one size fits all financial advice but there are good principles that can help you learn to intelligently map out your financial priorities.
Paying Down Debt
Debt often comes with an emotional burden. Even if, from a pure numbers perspective, paying off debt isn’t your highest priority, we all look forward to the catharsis of hitting send on that final payment. If you feel overwhelmed by debt, you’re not alone. A whopping 77% of American households have some kind of debt, with an average above $66,000 per adult.1 No matter how impossible it may seem right now, you CAN make progress towards becoming debt-free. Let’s take a look at some good prioritization strategies:
Start with Credit Cards: Credit card debt is costly because interest accrues daily. Go into each of your accounts and find out which card carries the highest interest rate. This card is your first priority. Focus on paying off this card while making minimum payments on the others. Once the card with the highest interest rate is paid off, roll that payment into the next card on the list while continuing to make minimum payments on the others. Rinse, wash, and repeat until you’re debt-free.
Store Cards: I want to teach you an exercise. Are you ready? Take a deep breath. Count to three. Now, as you exhale, I want you to repeat after me: “Noooo.” Good. Now, when your favorite store asks you if you want to open a credit card for a discount, remember this exercise. Store cards often carry the worst interest rates, and they’re banking on you not paying it off each month. Enough people finish the month with a balance that these stores make back the losses from any discounts they offer you to open a card, and then some. So, don’t open these, but if do you have one, pay it off…and then shred it.
After tackling credit cards: Focus on paying off student loans and car loans.
Mortgage: While it’s important to pay down your mortgage, It’s also the type of debt that can build equity over time. A good goal is to have your home paid off by retirement, but you probably don’t
need to feel stressed if you won’t be finished paying it off
by then.
Saving Priorities
One mistake that people make when trying to pay off debt is neglecting their savings. After all, your savings usually won’t grow as quickly as debt accumulates interest. The problem with this is that you’ll inevitably have some sort of unexpected emergency that will require urgent financial attention, and without sufficient savings you’ll have to put the expense back on your credit card. Your savings are actually an important part of a good debt relief strategy. Life happens, which is why we begin our savings priority map with an emergency fund.
Emergency Fund: This is your financial safety net. Aim to save enough to cover at least three months of living expenses. Don’t neglect your debt in the process. If you have debt, you should be using the aforementioned strategy as you save. Aim to save at least 3 months of living expenses and avoid keeping your emergency fund in a local bank. Instead, opt for an online high-yield savings account.
Retirement: Consistently contribute to your 401(k) or other retirement accounts. By building a combination of Roth and Traditional funds, you can control your tax bracket in retirement and stretch out your income. What is most important is that you try to save 10-15% of your income (including any employer match). Start with a percentage that you can manage and gradually increase it by 1% each year until you hit your target.
Beyond the Emergency Fund
Once your emergency fund is established you can focus on other savings goals. Create different accounts for each of your savings goals and set up automatic transfers to avoid spending the money elsewhere.
A Final Word
You’ve got this! Stay consistent and stay encouraged. Don’t be afraid to revisit your plan as your circumstances change and know that you don’t have to figure it out on your own. Remember that your employer offers a financial wellness benefit from Francis LLC. This benefit connects you to financial planners who advise and coach on any money matter without a sales pitch. Schedule a meeting with a financial planner by visiting your Participant Portal at FrancisWay.com. You can also call us at 866-232-6457.
Visit the Learning Library
