Saving money and paying off debt can feel like two conflicting goals, but it’s important to find a balance between the two in order to achieve financial wellness. How can you balance the need to save for the future with the urgency of paying off debt? Here are some tips for bridging the gap between your savings and debt:
1- Make a budget
Making a budget is an important step to take control of your finances and ensure that you are saving and spending wisely. A budget is a plan that outlines your income and expenses, and helps you track your spending to make sure you are living within your means.
To make a budget, start by listing all of your income sources, such as your salary, any side hustles, or rental income. Then, list all of your expenses, including fixed costs like rent and utilities, as well as variable expenses like groceries and entertainment. Subtract your expenses from your income to see if you have a surplus (meaning you have extra money left over) or a deficit (meaning you are spending more than you are earning).
It’s important to be as accurate and comprehensive as possible when making a budget, as this will give you a realistic picture of your financial situation. You may also want to include a category for savings, so you can track your progress towards your financial goals.
By making a budget, you can see where your money is going and identify areas where you can cut back or save. It’s a helpful tool for ensuring that you are in control of your finances and on track to achieve your financial goals.
2- Prioritise high-interest debt
Paying off debt can be a top priority for many people, but it’s important to prioritize your debts in order to make the most of your payments. Specifically, it’s usually best to focus on paying off high-interest debt first.
High-interest debt is debt that carries a high annual percentage rate (APR), such as credit card debt or payday loans. These debts can be particularly costly because the interest charges can add up quickly, making it hard to make a dent in the principal balance.
On the other hand, low-interest debt, such as a mortgage or student loan, may have a lower APR and can be more manageable to pay off over time. While it’s important to make regular payments on all of your debts, prioritising high-interest debt can save you money in the long run by reducing the amount of interest you pay.
To prioritize your debts, start by making a list of all of your debts and their APRs. Focus on paying off the debts with the highest APRs first, while still making the minimum payments on your other debts. As you pay off each debt, you can then move on to the next one on the list.
By prioritising your high-interest debt, you can save money on interest charges and work towards becoming debt-free more quickly.
3- Build an emergency fund
An emergency fund is a savings account that is specifically set aside for unexpected expenses. It’s a crucial part of any financial plan, as it can provide a financial cushion in case of emergencies, such as a car repair, medical bill, or job loss.
To build an emergency fund, start by setting a goal for how much you want to save. A good rule of thumb is to aim for at least three to six months’ worth of living expenses, though some financial experts recommend saving up to a year’s worth of expenses.
Next, determine how much you can afford to save each month. You can do this by reviewing your budget and identifying areas where you can cut back or save. You may also want to consider increasing your income by taking on additional work or finding ways to monetize a hobby.
Once you have a plan in place, set up a dedicated savings account for your emergency fund and make regular deposits into it. It’s important to keep your emergency fund separate from your other savings accounts, so that you don’t accidentally spend it on non-emergency expenses.
By building an emergency fund, you can protect yourself from financial setbacks and have peace of mind knowing that you have a financial cushion to fall back on in case of an emergency.
4- Look for ways to increase your income
If you’re having trouble saving money or paying off debt, one solution may be to look for ways to increase your income. There are many different ways to do this, depending on your skills and interests. Here are a few ideas:
- Ask for a raise: If you feel like you are underpaid at your current job, consider asking for a raise. Do some research to determine a fair salary for your position and industry, and make a case for why you deserve a raise based on your contributions to the company.
- Start a side hustle: A side hustle is a part-time venture that you can do in addition to your regular job. This could be anything from freelance writing or web design to dog walking or selling handmade crafts. A side hustle can be a great way to bring in extra income and pursue a passion at the same time.
- Find a higher paying job: If you’re not satisfied with your current salary, you may want to consider looking for a new job that pays more. Research job openings in your field and tailor your resume and cover letter to highlight your relevant skills and experience.
- Rent out a room: If you have an extra room in your home, you may be able to bring in extra income by renting it out on Airbnb or a similar platform. This can be a convenient way to make money while also meeting new people.
By looking for ways to increase your income, you can have more financial flexibility and be better able to save and pay off debt. Just be sure to weigh the pros and cons of any additional income streams and make sure they align with your overall financial goals.
5- Consider debt consolidation
If you have multiple debts with high interest rates, you may be able to save money and simplify your payments by consolidating your debts into a single loan. Debt consolidation is the process of taking out a new loan to pay off multiple existing debts. The goal is to combine all of your debts into a single loan with a lower interest rate, which can save you money on interest charges and make your debt more manageable to pay off.
There are several options for consolidating debt, including:
- Balance transfer credit card: If you have credit card debt, you may be able to transfer your balances to a new credit card with a lower interest rate. Just be sure to read the fine print and understand any fees associated with the balance transfer.
- Personal loan: A personal loan is an unsecured loan that you can use to consolidate your debts. You can often get a lower interest rate on a personal loan than on credit card debt.
- Home equity loan: If you own a home, you may be able to take out a home equity loan to consolidate your debts. A home equity loan is a type of secured loan that is backed by the value of your home.
Before you decide to consolidate your debts, it’s important to compare the fees and terms of different options and choose the one that makes the most sense for your financial situation. Consolidating your debts can be a helpful tool for getting your finances in order, but it’s important to be mindful of your spending and avoid taking on new debt after consolidating.
6- Seek professional advice
If you’re feeling overwhelmed by debt or struggling to save money, it may be helpful to seek the advice of a professional. A financial advisor or credit counselor can provide personalized advice and help you come up with a plan to achieve your financial goals.
A financial advisor is a professional who can help you plan for your financial future by providing guidance on investments, retirement planning, and other financial matters. They can help you create a budget, set financial goals, and choose financial products that align with your needs and risk tolerance.
A credit counselor is a professional who can help you manage your debt and improve your credit score. They can provide advice on how to pay off your debts, negotiate with creditors, and develop a budget that works for your financial situation.
Both financial advisors and credit counselors can provide valuable guidance and support, but it’s important to choose a professional who is reputable and has your best interests in mind. Be sure to do your research and read reviews before choosing a financial professional to work with.
Seeking professional advice can be a helpful step towards achieving financial stability and peace of mind.
Some key questions that are often asked about saving and debt management include:
- How can I balance saving for the future with paying off debt?
- To balance saving for the future with paying off debt, it’s important to find the right balance between the two. Make a budget to track your income and expenses, and prioritize paying off high-interest debt while still setting aside money for saving.
- How can I build an emergency fund?
- To build an emergency fund, set a goal for how much you want to save and determine how much you can afford to save each month. Set up a dedicated savings account for your emergency fund and make regular deposits into it.
- What are some ways to increase my income?
- Some ways to increase your income include asking for a raise, starting a side hustle, finding a higher paying job, or renting out a room on Airbnb.
- How can I improve my credit score?
- To improve your credit score, pay your bills on time, reduce your credit card balances, and avoid taking on new debt.
In conclusion, managing your savings and debt is an important part of achieving financial stability and peace of mind. By following the tips in this guide, such as making a budget, prioritizing high-interest debt, building an emergency fund, and seeking professional advice, you can take control of your finances and work towards your financial goals. Remember to find the right balance between saving and paying off debt, and be mindful of your spending to ensure that you are on track to achieve financial wellness.