When it comes to financial priorities there are many schools of thought, especially when it comes to whether to save or pay off debt first.  The majority are of the thought that paying off debt should ALWAYS be first.  I say, not so fast, I believe you must find a way to do BOTH.

One thing I know for sure is that a financial plan is NOT one size fits all.  We are all unique and our financial plans should be too.  Our uniqueness includes our money personality, experiences, stage in life, and goals.

When determining financial priority, you have to asses each goal individually and consider the following:

How much debt do I have? 

How much is my debt costing me?

How much am I earning on my savings/investments?

How much time do I have until I retire?

How much money do I have available to allocate?

Your answers to the above questions will determine the course of action you take, overall though I still say you must find a way to do BOTH.  But generally, here is my recommendation on when to save too if you have debt:

  • If the interest rate on your debt is low.
  • If your savings rate is more than your debt interest rate.
  • If your employer matches your 401k contribution you should be contributing at least as much as the match.
  • If retirement is not right around the corner. (If retirement is close you will want to eliminate as much debt as possible so that you’ll have to allocate less of your fixed income during retirement.)

If none of these situations apply, I still recommend saving but at a lower rate.  More of your available funds should be allocated to debt. Finding the right balance is key and should be determined on an individual basis.

Forgoing one for the other is not recommended since both are important to your future financial security.  Skipping savings until you pay off all your debt is not ideal especially if it is going to take years to pay off your debt.  At the end of that journey you will have nothing saved and will have forgone the chance to grow your savings.  Again, the KEY is to FIND THE RIGHT BALANCE.

Let me know in the comments if you are doing both, one over the other and why.

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