Save or Pay off Debt?

Should you focus on saving or paying off debt? That is a question many people have asked and there are a lot of experts and gurus with different answers. So, who is right?

First and foremost, I am not a financial advisor or guru. I can only speak from my personal experience and from those I've helped and advised along the way. Since college, I always loved learning about finances, watching gurus on television, and reading various books pertaining to finances. Some would say I'm a bit of a nerd. Okay, I am a NERD. I own it. So let's move on.

Things I did in the beginning of my journey towards financial freedom, I no longer need or replaced with other techniques. But one of the most important things I learned is to listen/read with an open mind and then figure out what and how to make it work for me. That meant, I had to make it work for my personal circumstances, temperament, and risk tolerance.

A great example of this is Dave Ramsey's Baby Steps. He gets a lot of flak nowadays, but I wouldn't be where I am today without his strategy. His steps are simple and easy to comprehend. Step 1: is to save $1000, followed by Step 2: Paying off all your debt except your mortgage. Prior to learning about his baby steps, I was following Suze Orman's advice to build an emergency fund of 8 - 12 months. I had been stuck there for a while.

I was lucky enough to have 3 months saved which I accomplished by paying myself first automatically, cutting out all the extras, and living way below my means. But getting to an emergency fund of 8-12 months seemed impossible especially with childcare cost at $800 a month and both my student loan and car note burning a hole in my budget. At the same time, reducing my emergency fund to $1000 and using the rest and any additional funds to pay off debt made me uneasy. I needed to feel that I could still take care of myself and my child if something happened, whether a layoff (that happened), car problems (that happened) or family issues (that happened).

So what is a person to do? Well, I did what worked for me. I stopped contributing to my savings and no longer aimed for 8 months of emergency fund. (Suze would not be happy with that decision.). I still contributed to my son's 529 plan. (Both Dave and Suze would disagree with me here.) But thank goodness I did. He's off to college this year and unlike me, he will be able to graduate from college with no debt.

"Achieving financial freedom is not a race to a finish line. It's a dance with spins, dips, swings, and probably a few kicks along the way." ~ Miz Chantalle'

I then used Dave's debt snowball technique and paid off all my debt, over $100K in total. Throughout those 3 years, I contributed to my 401K at various percentages. If I could go back, I would not have done that but you live and learn. And that my friend (in Suze's voice), is the biggest lesson. Achieving financial freedom is not a race to a finish line. It's a dance with spins, dips, swings, and probably a few kicks along the way.

I like to keep it simple and tell people to do both. Save and pay off your debt. Adjust along the way based on your financial personality and current situation. I found once I did that, I no longer felt financially insecure, which allowed me to take bigger steps and risks such as investing in stocks and real estate. But saving, living below your means, and paying off your debt is not only a good way to start but a mindset to always have. There's a reason why 80% of Americans, which includes household incomes over $100K, live paycheck to paycheck.

If you don't shift your mindset and create and sustain wealth building strategies, you will always feel financially insecure and afraid of the next financial downturn, which is guaranteed to happen multiple times in your lifetime. So instead of living in fear, start building healthy financial habits where you are now, regardless of your income or situation. It all adds up and pays off in the end.

#finances #financialfreedom #wellness #saving #debt #challenge