In the world of personal finance, there are two loud voices on the subject of saving for retirement while paying off debt.
Some say to wait to save until your debt is paid off. And others say you should be saving for retirement while paying off your debt. I'm a strong believer that you cannot afford not to save for your retirement until your debt is paid off.
Here are a few reasons:
Free Money!! Many employers match money that is saved for retirement. If your employer matches 50% or 100% of the money saved, I cannot say enough how important it is to contribute the max amount your employer will match. If you were told, "if you put $100 in a savings account, I will give you $100 extra"...wouldn't you do it?? What better option is there for your money than getting free money?? Especially when the money is all YOURS, you get to do whatever you want with it in retirement. I know you may be paying 8% interest on your loans (or 25% interest on your credit card) you're still coming out ahead in my book if your employer is matching even 50% of your contributions.
Time is your BFF. It can take a while to pay off debt. And time is your biggest asset when it comes to saving for retirement. Wasting time is your downfall. Taking the "someday" approach means "someday" may never come. Also, you may have great intentions on paying off that debt in 2 years, but the end game is....you might not. And you simply cannot afford not to put money towards retirement. The more time you have until you retire, the more the lovely thing called compound interest makes your retirement fund grow, and grow and grow!
Creating a Habit. This one is huge. Creating a habit and making a priority out of saving for retirement should start early, once you start the habit you won't even notice you are doing it! Start the habit now! If you save for retirement while paying off debt, you are forcing yourself to live off of less money! If you are already saving for retirement, but want to save more I love the trick to go into your account in January and increase your contribution by 1%. Every 3 months just bump up your contribution by 1%. That means at the end of the year, you will be contributing an extra 5% towards your retirement, and I bet you won't even notice the slight drop in your take home pay. That small change can make a huge difference.
You CAN afford it. There are certainly areas to cut back on when you are paying off debt, going out to eat, not buying the newest trendy clothes...but saving for retirement isn't one of them. If you can't find a way to save for retirement and pay down debt, you have a problem and it isn't solved by not contributing to your retirement account. You either need less money going out (so you need to cut back on spending) or more money coming in (you need to pickup and extra job or change jobs). Saving for retirement isn't the problem.
5 years ago when we were first married, and had $100,000 of student loan debt, we still made sure we were contributing towards Kevin's 401(k) at his employer, up the amount they would match. We didn't contribute the "suggested" 10% but did do about 7%. We also made efforts to put money aside in a Roth IRA for me, as I wasn't offered a retirement account at my job. It was hard knowing we put a few thousand dollars towards our retirement....that we wouldn't see for 40 more years...but looking back it was a great exercise for us. Even though we were trying our hardest to pay down our debt, we made it work, and we are certainly better off for it today.
Some say to wait to save until your debt is paid off. And others say you should be saving for retirement while paying off your debt. I'm a strong believer that you cannot afford not to save for your retirement until your debt is paid off.Here are a few reasons:
Free Money!! Many employers match money that is saved for retirement. If your employer matches 50% or 100% of the money saved, I cannot say enough how important it is to contribute the max amount your employer will match. If you were told, "if you put $100 in a savings account, I will give you $100 extra"...wouldn't you do it?? What better option is there for your money than getting free money?? Especially when the money is all YOURS, you get to do whatever you want with it in retirement. I know you may be paying 8% interest on your loans (or 25% interest on your credit card) you're still coming out ahead in my book if your employer is matching even 50% of your contributions.
Time is your BFF. It can take a while to pay off debt. And time is your biggest asset when it comes to saving for retirement. Wasting time is your downfall. Taking the "someday" approach means "someday" may never come. Also, you may have great intentions on paying off that debt in 2 years, but the end game is....you might not. And you simply cannot afford not to put money towards retirement. The more time you have until you retire, the more the lovely thing called compound interest makes your retirement fund grow, and grow and grow!
Creating a Habit. This one is huge. Creating a habit and making a priority out of saving for retirement should start early, once you start the habit you won't even notice you are doing it! Start the habit now! If you save for retirement while paying off debt, you are forcing yourself to live off of less money! If you are already saving for retirement, but want to save more I love the trick to go into your account in January and increase your contribution by 1%. Every 3 months just bump up your contribution by 1%. That means at the end of the year, you will be contributing an extra 5% towards your retirement, and I bet you won't even notice the slight drop in your take home pay. That small change can make a huge difference.
You CAN afford it. There are certainly areas to cut back on when you are paying off debt, going out to eat, not buying the newest trendy clothes...but saving for retirement isn't one of them. If you can't find a way to save for retirement and pay down debt, you have a problem and it isn't solved by not contributing to your retirement account. You either need less money going out (so you need to cut back on spending) or more money coming in (you need to pickup and extra job or change jobs). Saving for retirement isn't the problem.
5 years ago when we were first married, and had $100,000 of student loan debt, we still made sure we were contributing towards Kevin's 401(k) at his employer, up the amount they would match. We didn't contribute the "suggested" 10% but did do about 7%. We also made efforts to put money aside in a Roth IRA for me, as I wasn't offered a retirement account at my job. It was hard knowing we put a few thousand dollars towards our retirement....that we wouldn't see for 40 more years...but looking back it was a great exercise for us. Even though we were trying our hardest to pay down our debt, we made it work, and we are certainly better off for it today.
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