When reading up on financial advice, it might seem like you're getting conflicting information: Build up an emergency savings account, but if you're not investing, you could be losing money to inflation. Curb your spending, but don't be afraid to shell out for things you like.
Instead of focusing on all of these goals simultaneously — saving, investing, budgeting — reframe your thinking to prioritize one at a time, says Bernadette Joy, founder of Crush Your Money Goals. Joy and her partner paid off $300,000 in debt in three years and now have a net worth of $1 million. They accomplished this, she says, by narrowing their focus. "Humans are not great at multitasking," she says.
Science backs this up: Switching gears can actually make you less productive, not more, studies have shown. Here's how focusing on fewer goals at one time can help you financially.
"Where I see a lot of people struggle, and why they feel like they are not gaining much traction, is because they are doing too many things at the same time," Joy says. "They are trying to pay down debt, invest, do a side hustle — they are trying to do too many things at once."
Instead, she says, "reverse into one goal." Joy chose to pay down her debt first. "I'm a huge proponent of paying debt down as soon as possible because of the mental clutter," she says.
For Joy, having $300,000 in debt took a mental toll on her and her partner and made it difficult for them to focus on other goals. It's not an unusual response: Unfulfilled goals can impede a person's ability to complete other tasks, according to a 2011 study in the Journal of Personality and Social Psychology.
"First I paid down consumer debt," she says. "Then I focused on student loans. Then I focused on investing. Then I focused on paying down the house. Then I focused on starting my business."
Some experts agree that paying down high-interest debt, as Joy did, should be a top priority. There is not a finite number as to what is considered a high interest rate, however if the interest rate is above 8%, you probably want to consider it as part of that category.
Typically, experts say it's smart to build up emergency savings and contribute enough to your 401(k) to get the full employer match even while paying down debt. Until you reach your savings goals, consider splitting your money 50/50 between paying down your high-interest debt and building up your savings, Mark La Spisa, a certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois, told Grow.
After you've taken care of debt and have a cash reserve, you can focus on investing and growing wealth.
Obioha Okereke, founder of College Money Habits, built a $150,000 net worth in six years. The 24-year-old accomplished this goal by investing, he says, but not before he saved. Okereke automatically transfers $1,250 to a savings account on the first of each month.
"Make sure you have savings, specifically emergency savings, because when you invest you are putting money at risk," he told Grow. "Make sure that if you were to lose money in the market it's not going to change the way you live or compromise your lifestyle."
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