This topic is something that most people wonder. Many Americans have some sort of debt. In fact, it is difficult to get through life without taking on any debt at all. Most Americans can’t purchase a home or go to college without taking out loans, therefore, we have mortgages and student loans. In addition, many Americans rack up credit card debt due to poor money management skills.
This means most Americans are juggling debt while trying to save money, establish an emergency fund, and invest for retirement in an attempt to have a solid financial future.
In order to meet multiple financial goals, Americans need to learn how to prioritize their debt while saving money and investing wisely for retirement. This is not a simple task. It requires discipline to stay on track, as well as, determining your all of debt, savings and retirement investments.
When prioritizing your financial goals, you need to:
- Establish a retirement plan
In order secure your financial future, you must plan your retirement needs first. Retirement should be at the top of your financial priority list. Too many Americans wait until it’s too late to plan their financial future and live paycheck to paycheck only worrying about day to day finances. Planning for the future now is the most important way to establish a solid financial future. Ideally, you should be saving 15% to 20% of your gross income for your retirement.
- Save an emergency fund
Taking the time to save an emergency fund will protect you when help unexpected expenses come up. Too many Americans do not establish an emergency fund which forces them to use credit when unexpected situations arise. Not having an emergency fund often pushes Americans into debt.
- Reduce debt
After you have established a retirement plan and an emergency fund, aggressively paying down your debts. In order to do this, create a list of your debts including balances and interest rates. Then decide how you want to pay down the debts. You can pay them down by choosing the highest interest rates first or paying the smallest to the largest debts. You may want to achieve a debt free life by using the Debt Snowball or the Debt Avalanche method to pay down your debt.
There are some exceptions to this order. For instance, if you have a high-interest rate debt over 8%, you may want to reduce this debt before establishing your emergency fund. However, that does not mean to completely neglect saving your emergency fund. For instance, you may have an additional $500 to allocate toward your debt or savings. You may choose to pay $400 toward your high-interest rate debt while still putting $100 aside for an emergency fund.
Prioritizing your financial goals to avoid financial pitfalls that many Americans succumb to. The biggest pitfall is credit card debt. It is a waste of your hard-earned money. Once you payoff this debt, live within your means by establishing a budget and stick to it.