Updated: Nov 13, 2021
You got your first job, getting married, just got divorced, or now you are a widow
You just moved out and got that first big job and have a tone of student loan debt. You're getting married and trying to figure out finances. Or your divorce is over, or maybe it will be soon. Or your spouse just passed, things aren't as good as you thought. Your mind is reeling and you are confronted by yet another decision: Save or pay-off debt. What do I do now?
Can't someone else decide? Or make it all go away? I've had those thoughts myself, and all these transitions can be an opportunity to start over and we get to be in control this time; to get educated to create goals, a vision for our new life. So let's take it slow..
1 - Where do I begin?
Part of this analysis would include creating a spending plan for your new single or married life
Know the current situation - Before deciding which to embark on, it’s important to know a few things, such as:
How much do I owe? To whom? And by when does it need to be paid off?
How much do I need in additional savings for my goal?
If that is a retirement goal, make sure to include inflation on your expenses and healthcare costs. See “I want to be a millionaire (or do I?)” for additional information in this. Approximately 60% of women alive at 62 can expect to live to age 90 -- so make sure you use a realistic age
How much disposal income do I have to put towards these goals?
This may sound simple but many folks cannot answer these questions and make a decision without knowing the facts. Part of this analysis would include creating a spending plan for your new single or married life . Don’t forget to take into account any taxes that may be due and any withdrawal penalties that may be owed if you have taken out retirement funds during the year before age 59 ½.
2 - Know the Pros/Cons of each option
After identifying how much can be put towards reaching these goals, we want to understand the pros/cons of each option. Some considerations could be: Would paying off debt help my credit? Do I need a good credit score to get student loans? Is having good credit right now important to a home refinance in my divorce settlement, buying a new home or possibly obtaining a car loan? What am I paying in interest? How many years do I have to make up the gap in retirement assets? What could I conservatively earn in the market with my risk tolerance in the years leading up to retirement?
Working with a Financial Coach that has tools to help you understand your choices can make the decisions less scary and daunting. I know this can be particularly true for the post-divorce clients, widows I work with, that took the back seat on finances during their marriage and even those starting out that did not learn these skills in school or from their parents
3- Know that the decision is emotional
This is not a “one” or the “other” choice; Debt Vs. Saving.
Lastly, as I shared in the TransAmerica Article “SHOULD YOU PAY OFF DEBT OR SAVE FOR RETIREMENT?”, remember this process is emotional. Sometimes quick wins in paying off debt can help empower us and keep us committed to our plan, which is so important when we are trying to make strides in our finances.
This is not a “one” or the “other” choice; Debt Vs. Saving. Even if you are in college your plan can be a combination of both. Look, the truth is that, the success of financial planning, coaching, advice and goal setting really has more to do with financial behavioral change than having a great plan. No plan is great if it’s never acted upon or implemented.
This information is not meant to be construed as financial, tax, or law advice. Always speak with a professional in the applicable area of expertise to address you specific situation and concerns.