We always hear, save as much as you can to create a nest egg for the future. Or save for future emergencies, you never know when something may happen. On the other hand, we are also told to pay off our debt as soon as we can. Pretty confusing right? Should you save or pay off your debt? I know it can be overwhelming when deciding what to do first or what to do at all. But think about this, what is the average interest on your savings account 1%, now how much interest are your credit cards charging 15%? Are you really saving or loosing money?
Lets discuss a few steps to follow when you want to save and become debt free:
1. Save $1000 for your emergency fund
Your emergency fund should include savings for housing expenses such as rent or mortgage, property taxes, insurance, food, and utilities. It is recommended to have six to nine months’ worth of wages. But anything is better than nothing when it comes to an emergency fund. Start small, and build from there.
2. Pay off your debt
After you have saved or set aside $1000, you can start paying off your debt. There are 2 methods that I suggest, the snowball or the avalanche methods. The snowball method helps you to pay off your smaller bills first. The avalanche method helps you pay off your higher interest rates first. Choose the method that is best for you and fiercely pay off those bills.
3. Save 6 months’ worth of expenses in your emergency fund
The 3rd step after all debt is paid in full is to start saving at least 6 months’ worth of expenses in your emergency fund. If you haven’t already, set up an automatic transfer from your checking to your savings account. When your savings is funded and your bills have been taken care of, you can start saving for things you want.
You should always have a goal in mind for your savings, even if it is for wants. Create saving goals and attach a dollar amount to each one. For example:
- A car
- A vacation
- A house
- Other expenses
Remember, if you don’t create a reason for your savings, you may have the potential to waste it.
©2018 by Felicia V. Petit-Frere. All Rights Reserved. Felicia V Petit-Frere, MBA is a financial coach, founder and CEO of Windsong Financial coaching LLC (WindsongFC.com) where we help you become financially fit one step at a time. Join me in a facebook group set up just for you, The Smart Money Maker, we offer free challenges, webinars and do it yourself or group programs.