The age-old question: conquer your debt or jump into the world of investing? For many, it feels like a constant battle.
But what’s the right strategy? The truth is, there’s no one-size-fits-all answer. By considering these 5 key ideas, you can make an informed decision that crushes debt and grows your future.
1. Tame the High-Interest Beasts: Not all debt is created equal. Credit card debt with a sky-high interest rate of 20% is a much bigger threat than a low-interest student loan. Focus on paying off high-interest debt first. The money you save by eliminating those debts can then be channeled into investments, giving your money a chance to work for you.
2. Build a Safety Net: Life throws curveballs. Before diving headfirst into investing, ensure you have a solid emergency fund. Aim for 3-6 months of living expenses to cover unexpected costs and prevent you from going back into debt. Find out how much you need for 6 months, just in case! You never know what can happen and it’s better to have some money in your pocket than stressing later to find a solution.
3. The Power of Compound Interest: Albert Einstein called compound interest “the eighth wonder of the world.” The sooner you start investing, the more time your money has to grow exponentially. Investing early allows you to benefit from compounding, where your returns generate even more returns over time.
One of my favourite readings is Dividend Growth Machine. I read this book in 2019, just before the pandemic and it completely changed the way I see saving and investing. It is easy to read and understand. I would say my investment journey was inspired by this piece of financial literacy.
4. Don’t Miss Out on Free Money: Many employers offer a 401(k) match, essentially giving you free money for your retirement. Prioritize contributing enough to capture this full match. It’s like getting an instant return on your investment, with no risk involved.
5. Balance is Key: The best approach often lies in the middle. Consider allocating a portion of your income towards debt repayment while also starting to invest, even if it’s a smaller amount. This way, you’re making progress on both fronts and building a secure financial future.
Remember, the best strategy is the one that works for you. If you’re feeling overwhelmed, consider consulting with a financial advisor to create a personalised plan that tackles your debt and jumpstarts your investment journey.