The time has come to make the next big decision for your future.
You have a steady job, making a decent income, and either want to start putting money towards your retirement, or already have and maybe want to contribute more so you know you have enough for your future. But you also have a looming cloud over your head called debt. And you’re trying to figure out why sometimes even just making monthly payments, and juggling money seems like a confusing hassle. Are you trying to do too much all at once? Trying to do it all may makes you feel like you are running in circles. And you are not alone in this as many Americans struggle with trying to get out of debt, “Keep up with the Jones’”, and just try to get by from paycheck to paycheck.
But what if you don’t want to live like this anymore?
What if you want to be in control of where your money goes, how it’s spent and where it’s saved? Are you asking yourself “How do I accomplish this? What should I do? Or how do I do this?”
If you are familiar with Dave Ramsey and the 7 Baby Steps, you already know the answer. If you aren’t familiar with the Dave Ramsey plan, check out the article Crawl, Walk, and then Run to Financial Peace which can be found in the “Blog” area on the Whitaker-Myers website. In the meantime, below are the 7 Baby steps listed in order:
Baby Step 1: Save $1,000 for your starter emergency fund.
Baby Step 2: Pay off all debt (except the house) using the debt snowball.
Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.
Baby Step 4: Invest 15% of your household income in retirement.
Baby Step 5: Save for your children’s college fund.
Baby Step 6: Pay off your home early.
Baby Step 7: Build wealth and give.
As you can see, paying off all your debt (other than your mortgage) is listed as number 2 in his plan, and comes before investing for retirement, and any children’s college fund(s). The reason for this is because you want all the ancillary income you have, to go straight to your debt, throwing everything you have at it. Trying to get out of debt as quickly as you can. We’re talking running as fast as an animal racing for its life mentality.
Which is why you must be a gazelle first before you can be “king of the pride land”.
If I want to be “king of the pride land”, why must I be a gazelle first?
So maybe saying you want to be “king of the pride land” is going a little far (and maybe pulling from a 1990’s Disney quote), but the metaphor is there.
You want to be in power of your surroundings, feeling comfortable with your home, and maybe being able to indulge in a luxury or two as a king would. Meaning, you have NO DEBT to worry about and can enjoy the finer things (or even day to day things) in life more care free. So, the question, why must you be a gazelle first though?
Come with me and I’ll explain……
Similar to a gazelle trying to out run the lion, cheetah or even the leopard to save its life, you must throw all of your energy into trying to pay off debt.
The first place to look when trying to pay off debt is going to be your budget and start asking yourself these questions:
Where am I overspending? Where can I decrease spending? Can I cancel this subscription or membership until my debt is paid off? Can we cut back on groceries by $25 or more this month? Am I able to limit myself to going out to eat just once or at most twice a month? Do I really need to buy that shirt this week?
But a question a lot of you may not be asking yourself is……
Should I stop investing while I pay off my debt?
The answer is not always cut and dry for everyone. And to some, it might seem counter-productive. “Not save for my future? How will I be okay?”
Obviously, we know taking care of your future, and investing is something we at Whitaker-Myers Wealth Managers will always encourage someone to do. However, taking a short time to pause and focus on throwing everything you can at your debt to get that paid off, could be more beneficial than trying to invest and pay off debt at the same time.
Let’s do some simple math:
Your combined debt is $20,000 (this includes student loans, credit card, car payment, etc.) with an average interest rate of 6%.
You spend $250 a month towards your debt and $250 towards investments (total $500 monthly).
To pay off the $20,000 debt, it would take you just under 8.5 years to pay off (101 months to be exact).
Take the same $20,000 of debt and 6% interest rate.
Now spend $500 a month towards your debt while you are pausing your investing.
To pay off that same $20,000 in debt, now it will only take you just over 3.5 years to pay off (43 months).
You literally gained 5 years of being out of debt! That is HUGE! Now you are able to take that now freed up $500 (that you were putting towards your debt) and start putting THAT towards investing.
And that is just with the money you stopped putting towards your investments. What if you became REALLY gazelle intense?
What is “Gazelle Intense” again?
Remember gazelle intense is “running for your life to get out of debt” mentality.
Which means, you start doing things to get yourself out of debt as fast as possible. You cut back on your eating out budget to ZERO. You figure out a way to make your grocery line budget come down $100 a month by adapting the “rice and beans” menu planning and seeing where you can save by creating less expensive menus. (For tips on this check out another article on our blog called Gas. Groceries. And Growing Price Increases!) You start selling things around your house you no longer need or want. You pick up a side hustle cleaning houses on the weekends, or driving for UBER or LYFT. Have any natural talents like playing the piano? Maybe start teaching lessons for extra side money.
The point is, start seeing where there are extra ways to put money in your bank account today. I’m not saying some of these are going to take away some extra free time, or be hard work, but if you can sacrifice doing these for 1-2 years to be out of debt faster, wouldn’t it be worth it vs. being stressed out, wondering if a check is going to bounce or not as you pay off your debt for the next 8-9 years?
And once you are out of debt, you can start to resume your investing, not only earlier, but also at a higher dollar amount than you were before, which in the long run, is setting yourself up for a more comfortable and safe feeling future.
So, if you find yourself asking the question: Pay off debt, or save for my future?
The key is running the numbers, talking to your trusted financial advisor, and ultimately doing what is best for you.
However, if you do decide to pause on investing to focus on paying off your debt, remember to do it with gazelle intensity. As Dave says, “Your income is your greatest wealth-building tool”, so make sure you are using it to your advantage and using all that is available for you to build and save, rather than seeing it go towards others as you slowly pay off your debt.
If pausing your investments sounds like something you’d like to do, we encourage you to talk to one of our financial advisors. You can view and schedule a meeting with them at a time that works best for you and your schedule by visiting the Whitaker-Myers website.