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Should You Save, Pay Off Debt, or Invest?


When it comes to creating a financial plan, you might be wondering how you can balance saving, getting out of debt, and investing.

Focusing on only one can be a problem down the line, but also spreading yourself too thin amongst too many goals can be equally bad. Depending on which financial experts you listen to, there are a lot of conflicting opinions on this matter.

Today, I'm going over a good plan you can use and explaining why you need each step.

Step 1: Emergency fund first

Before you do anything with your debts or investments, you need an emergency fund.

An emergency fund is a savings account you put aside that can save you in an emergency. This can save you if you lose your job, your car breaks down, a health concern pops up, and so on. It also prevents you from going deeper into debt if you have something happen.

If you have debt, how much of an emergency fund is good enough? Well, in that case, you’d want to build up a bare minimum emergency fund so you can get working on some other financial goals.

After you pay off your debt, then that is the time to build your full emergency fund.

Building your emergency fund

While some people say $1,000 is a good enough emergency fund, in my experience, it was closer to $5,000. Given what I went through with my pets and their health concerns, I was overly prepared.

You need to determine a number that you’re comfortable with for an initial emergency fund while paying off debt.

Make sure the number is something you can save up for quickly so it doesn’t take time away from other financial goals. You don’t want it to take a whole year to build your emergency fund, because you want your money to go toward other things sooner than later.

Step 2: Start tackling debt

Once again, there’s a lot of conflicting advice out there on which debts you should tackle first.

Personally, I focused on the snowball debt payment method which is where you focus on paying off your debts from smallest to largest balances. I threw all of my money toward my debt, that worked for me because I wanted the quick wins.

You might decide to start paying off a debt with a higher balance or a higher interest rate. Pick what works for you, but don’t overthink it. Starting your debt payoff journey is far more important than spending months analyzing your options.

Keep in mind, the faster you get out of debt, the faster you can focus on investing and doing other fun things with your money.

Step 3: Fully fund your emergency fund

As I mentioned earlier, once you’re debt free it is time to build that fully-fleshed-out emergency fund. Whether you decide to build it anywhere from 3 months to a full year, you’ll want this financial security.

That way, no matter what life throws at you, you have a cushion to protect yourself.

Step 4: Investing

Once you do all of these steps, it’s now time to start investing. Whether that means investing in real estate, retirement, or something else, with the peace of mind of being debt free and having a nest egg, you’ll be ready to tackle this head-on.

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