Save, Invest or Pay Off Debt? How to Tackle Competing Money Goals


In theory, working toward important money goals—like paying off debt, saving for the future and buying a home—seems pretty simple. After your paycheck rolls in and bills are paid, you can divvy up cash among those priorities.

Except it’s usually not that easy. It rarely feels like there’s enough money to go around, and too often, it seems like multiple goals deserve to be top priority.

Case in point: Every Saturday, I have a quick money date with myself, where I review our recent spending and almost always vent to my husband that our savings goals are out of whack.

Me: “Maybe we should put our emergency fund on hold and focus on credit card debt for a while.”

Mike: “But what if an emergency pops up?”

Me: “You’re right. Let’s laser-focus on saving and go back to debt after.”

Mike: “Yeah, but we are paying a boatload in interest…”

Round and round we go. I have a perpetual case of saver’s remorse—I always feel like we’re prioritizing the wrong thing. So to get some guidance (and ease my anxiety), I asked a Certified Financial Planner to help me order my competing money goals.

Here are the top takeaways that apply to virtually any saver.

1. After banking one month of expenses, tackle high-interest debt.

Turns out, there is a pecking order when it comes to saving and paying off credit card debt. Advice can differ on exactly how much to save before prioritizing higher debt payments, but most experts agree you should set aside a minimum of one month’s worth of expenses.

In other words, pay the minimums on your debt while building a mini safety net—which helps you avoid relying on credit if an unexpected bill pops up—then switch back to paying down debt. Once you’re debt-free, you can work toward the ultimate goal of banking six months’ worth of expenses.

2. Don’t buy a home before you’re truly ready.

If you’re like me, your Pinterest boards are loaded with dream homes. And it can feel like you’re throwing away money on rent when you want to build equity in your own home. But talking to Benjamin Sullivan, a CFP at Palisades Hudson Financial Group, helped me realize how many boxes we need to check off before it makes sense to buy.

In addition to saving a 20-percent down payment, there are a lot of costs to consider besides a mortgage. (What if the roof springs a leak? Or property taxes increase?) There’s also the possibility that a home decreases in value. If you’ll stay for years, this may not be a deal breaker, but it’s a reasonable consideration if you might move in the near future.

“Sometimes it makes more sense to rent,” Sullivan says. “Buying a home is an emotional process, but you can set yourself up for success by saving an adequate down payment, increasing your cash reserve and budgeting for new expenses before putting in an offer.”

Getting retirement savings on track is also key. If you’re behind, jumping into homeownership might cripple your efforts to catch up. Speaking of which…

3. There’s no financial aid for retirement.

Mike contributes 3 percent to a 401(k), and gets a 50-percent employer match, and I’m a freelancer with plans to open a Roth IRA this year.

We know it’s ideal to save 10 to 15 percent of our income, which would require a big step up. So I often wonder if we should dial up our efforts here before diverting our attention elsewhere. For us, “elsewhere” would likely be our young daughters’ college funds, which I feel guilty for neglecting. For others, “elsewhere” could be starting a business or saving for a new car.

Sullivan confirmed that it really is in our best interest to prioritize retirement above most other goals. “You can’t get financial aid for your retirement,” he says. “While your kids can get financial aid for college, and you can finance things like home and car purchases, there aren’t necessarily other ways to pay for retirement.”