This is a question that bewilders most young adults. Any individual with common sense would suggest investing all your saved-up money by the end of the month.
This is a great way to increase your wealth and save up a lot for your retirement.
But what if you have debt?
Should you proceed to pay off your debts or should you save up for your retirement?
This is a question that resembles like some experts would say, the Pepsi or Coca-Cola question of personal finance.
For young adults, this dilemma is faced a lot. As most of them have taken student loans to complete their studies and they need to pay off their debts every month with whatever they’ve saved up, failure to do so can result in them going bankrupt eventually.
But it is also important for them to plan for the future and invest in places which will help them to multiply their money. With both being equally important to their financial conditions there are multiple ways to handle this and we have collected all the methods below which can help you if you are facing the same situation right now.
Pay Debt First
Any smart person would give you the advice to pay off your debts before you make any investments elsewhere or even decide to save money. This is mainly because in most places interest rates on loans are very hefty and go up to 15% annually.
If you do not pay off debts on time you are having to pay 15% extra for the next year. Therefore it can be considered as an investment as well if you choose to pay off your loans on time, as you save up on the 15% interest rate by the end of the year.
That is why people should put forward all their money to pay off debts and be stress-free. Later once the debts have been paid off the extra money can be invested elsewhere to get more returns.
Some people do choose to overlook debts that have single-digit interest rates, this is fine to do. But if your interest rates are double digits, for credit card payments e.t.c. it is better to get them done with as soon as possible. Some deals like paying off your mortgage at an early age however might be a bad idea.
Saving for Retirement
It is a common saying that you might end up paying for your debts all your life so why not save up a bit for yourself along the way. This isn’t completely wrong.
Even though common sense might say that you should get rid of your debts first it is okay to save up for your retirement as well. 401(k), IRA are policies that you can easily contribute to from a very young age.
As a young adult, you should plan for your future and make sure that you have enough capital to survive your retirement days. There are companies that promote retirement plans for their employees, if your company does the same then you should make use of it as well.
The policies are very similar to the match you get from 401(k), even if you believe in paying off your loans first it is best to make use of this policy and get the free money you are getting.
Companies that give you half of what you put in your savings fund is a really good deal as you are getting 50% back on your investment and when it accumulates you get a good return that should be enough to keep you going throughout your retirement days.
Even with saving for retirement, you should also keep savings for emergencies or other big expenses that might come at you randomly. For major fixes in your house, or for an emergency health expense you should plan properly beforehand and put money aside for all of this.
This also helps in making sure that you wouldn’t have to take more debts in the future to meet these expenses. For some good investment deals, you can check out Relai Review and pick the best investment deals and select what suits you best to get returns on your money.
Plan for Retirement
You should properly analyze your debt situation is what we suggest. If you see that it is okay to delay your debt payments then you can choose to invest the extra money you have elsewhere.
Once you have saved up enough for your emergency fund and also have a proper retirement plan in place you can go back and start repaying your debts. Or else you can also choose to get rid of your small payments first as you can consider it to be one less thing to take care of.
The larger bills can be kept aside for later. If you are someone that believes in getting rid of all the bills then there is nothing wrong with feeling that way. All of it falls in personal preference.
Some people might feel like it is better to pay off their debts first and have lesser stress by taking out money from their retirement fund. Money that they are going to be using in the future anyway.