When is the correct time to start investing for retirement? And should you ever compromise your retirement planning due to any other financial obligation or debts?
If you can rightfully answer those above 2 questions, then believe it or not, you donāt need anyone elseās advice about when to save for retirement!
Your answer will always be.. Right Now!!Right Now!!!
Practically speaking, your debts should never be an obstacle, when you are on your way to stash money for retirement, or savings!
But, debts can still keep you pressurized, and you might still feel tensed about how to tackle those hefty payments when you are too eager to plan your savings and retirement!
So, should you first clear all your debts and then channel your money towards retirement, or handle both debts and savings at the same time?
If you choose this option, then you should aim to clear your debts as fast as you can because more you are late in investing for retirement, lesser will your retirement ānet worthā be!
You got to keep in mind that paying off your debts is just the kickstart! The real war will begin once your debts are paid in full, and you focus on retirement planning!
You can definitely make extra payments each month and get done with your debt liabilities! But let me tell you that things might not be that easy after all.
So, you need to improvise a method that will help you to stay on track with steady payments and will also clear your debts quickly.
I suggest you choose a unique debt pay off strategy. You should go for either the debt avalanche or the debt snowball! Fancy names eh??!!!
But trust me they both are effective, and I am saying this, for I have checked and revised them thoroughly myself!
What you do is, you make extra payments on this debt, while you keep up with the minimum payments on the other debts.
Once you clear this debt, you will now target the next debt with the highest interest rate that falls in the descending order! Now you start making extra payments for this one.
You keep on going like this till you have cleared all your debts!
This method was devised by Mr. Dave Ramsey! Itās pretty good in the sense that you will be clearing your debts in ascending order of their amounts and get moral boost eventually.
For this, we need an example. Letās say you have 3 credit card debts:
Credit card 1 : Balance- $1000, Min pay- $100
Credit card 2 : Balance- $3000, Min pay- $200
Credit Card 3 : Balance- $2000, Min pay- $150
As per the method you first target Card 1, cause itās having the lowest balance. Now, you have to do extra payments for this debt, while you keep on doing the minimum payments on your other cards.
If you can easily add an extra 100 dollars, then you will be paying $200 for credit card 1. By doing this extra payment, you will clear this card in 5 months or so.
After you are done with Card 1, you will now add the $200 payment, to Card 3ās payment. So, you will be paying $350 ($150 + $200), for this card.
Again when you clear this card, you will be making a payment of $550 ($350 + $200) for Card 2.Ā You carry on like this till you clear all your debts.
Actually, you can also figure out your own ways to come out of debt mess quickly! You have absolute freedom, and donāt forget to share your method in the comments section of this article. We would love to hear your own improvised methods and steps!
To do this you will have to take help of a budget. I always prefer the backward budgeting.
In this type of a budgeting strategy you prioritize your expenses and make use of your full income.
In your case, you will have to give your desired savings amount a big priority along with your debt payments.
An example might again help it to explain well.
Letās assume that your monthly income is in the low quarters, and you have some $4k coming in each month.
Your total debt payments are somewhere around $500, and you plan to keep away $300 for retirement.
So your priority list should start like this:
P1: Debt payments- $500
P2: Retirement savings- $300
P3: Utility bills- $500
P4: Grocery- $1000
Andā¦ā¦.. You keep on going like this till you exhaust your whole paycheck!
Now, this priority list will completely depend on your lifestyle and your unique financial situation. However, you should always try to minimize your monthly expenses as much as possible until you have cleared all of your debts!
But, if you believe that you have too much of debt amounts to take care of and no budget can help you moderate your debt payments, then trust me buddy, you should follow up a credit counseling session, or find the best debt relief option!
Otherwise, I am being honest down here, I have seen lives getting ruined due to debts! Forget retirement, you wonāt be able to live a good life now itself!
So, whatever step you are planning to take, make it quick! Retirement wonāt wait for you! It will come in a flick!!!! Like you know, you remember those lines by Floyd, from the song Time, in Dark Side Of The Moon??
āAnd then one day you find ten years have got behind you.
No one told you when to run, you missed the starting gun.ā!!
Thatās what happens man!!! Thatās exactly how people feel when retirement hits!
Therefore whatever option you choose, make sure to get rid of the debts as soon as possible, so that you can completely dedicate your time towards planning for retirement.
Thatās all I had to say, about how to carry on with debts and retirement! Hope this post comes of some good help to you! All the best for a financially successful life ahead!
And, as said earlier, donāt forget to comment your thoughts below.