You're probably familiar with the saying, "Pay yourself first." But what does that mean? When it comes to your finances, there are two main things you can do: reduce your debt and invest more. So, which one should you do first?
Ideally, you'll want to do both. But if you had to choose just one, which should it be? Reducing your debt is a terrific way to get your finances in order and free up more money for investments. But investing more is also important because it can help you reach your long-term financial goals.
So, which should you do first? It depends on your priorities and your specific situation. Here are a few things to consider:
What's the best way to prioritize your money? Should you focus on reducing debt, or investing more?
There's no simple answer because it depends on your specific financial situation. But here are a few things to keep in mind as you make your decision.
First, think about your overall goals. What are you trying to achieve? If your goal is to reduce debt, then paying down debt should be your top priority. But if you're trying to save for a specific goal, like retirement or a down payment on a house, then investing more may be the better option.
Second, consider your current financial situation. If you're carrying a lot of debt, it may make sense to focus on reducing that debt first. But if you have some room in your budget, you may be able to afford to invest more.
Finally, think about how long it will take you to reach your goal. If you have plenty of time, investing more may be the better option. But if you need to achieve your goal sooner, paying down debt may be the better choice.
It's not just the financial cost of debt that you have to worry about. There's also the emotional cost.
When you're in debt, you're always worried about money. You're always stressed out about how you're going to make ends meet. You can't relax and enjoy life because you're always worried about your finances.
And that stress takes a toll on your mental health. It can lead to anxiety and depression. It can cause you to lose sleep and make you feel constantly overwhelmed.
Debt is a major source of stress, and it's one that you can eliminate by taking control of your finances.
Now that you’ve determined your objective and whether it's wise to reduce debt or invest more, it's time to figure out the type of investments you should be making.
Your options depend on the amount of money you’re willing to commit, your risk tolerance, and how long you plan on investing.
For most beginners, low-risk options like savings accounts, certificates of deposit (CDs), and money market mutual funds are ideal due to their stability.
These investments don’t provide a high return, but they are relatively safe from market volatility.
For a slightly higher return with minimal risk, consider diversifying into government or corporate bonds.
You can also consider investing in stocks and ETFs if you’re comfortable with higher volatility and understand the risk involved.
Finally, if you want to get creative with your investments and are willing to accept higher risks be sure to do your research first before investing.
It can feel overwhelming to figure out when is the right time to start investing. The answer lies in understanding when it's more important to reduce debt and when it's more important to invest in your future.
If you're carrying high levels of debt, it's generally wise to prioritize paying that off before investing. While investing can be a fantastic way to secure your financial future, it can also be a risky endeavor, and if you're already dealing with high debt, taking on additional risk could be too much for you.
However, if you don't have any high-interest debt and have enough money each month for both investing and meeting all your personal needs, then it's wise to start investing as soon as possible. Investing even just a bit each month can help you reach your long-term goals faster, such as retirement or buying a new house or car.
Remember that determining the right balance for you requires considering your current financial situation and your long-term financial goals. Think carefully about where you want to focus the most energy - on reducing debt or investing in the future and act accordingly.
Determining which debt to pay off first can be a tricky situation. After ensuring that all your necessary bills are paid off (e.g., rent, insurance, groceries, etc.), here are some strategies that you can use to pay off your debt:
Whichever strategy you choose, make sure it’s sustainable and that you have realistic goals in place so that you don’t become overwhelmed by the process.
At the end of the day, it's important to remember that you're in control of your finances. You get to decide what to do with your money, and there's no right or wrong answer when it comes to reducing debt or investing more.
It's up to you to decide what's best for your financial situation, and there's no shame in asking for help if you're not sure what to do. If you're feeling overwhelmed, don't hesitate to reach out to a financial advisor for advice. With a little bit of planning and strategizing, you can get your finances in order and start working towards your financial goals.