Should You Save or Pay Off Debt? A 4-Step Guide to Prioritizing Your Debt-Free Journey

by Sahirenys Pierce

Feeling indecisive about how to prioritize your money is a common feeling when making money moves. It’s hard to decide if paying off debt is more important than savings. I know that everyone’s situation is a little different, but to me, some money moves remain vital to me. Since going through multiple family emergencies during my debt-free journey, I know it’s not all about the numbers. We had to be strategic on how to balance our financial goals and our heart. Here’s how my family strategically prioritized our money moves during our debt-free journey.

Step 1: Establish an Emergency Fund (1 Month)

When it comes to saving money, I am very big on saving with purpose. Saving just to save is a no go in my book. If your debating between paying off debt or saving money, you have to answer this question first. Do you have an emergency fund? If you don’t have one, then your emergency fund needs to be your main priority. Even a person with the best of luck can get hit with an emergency situation during their journey. It’s best to put your air mask on first before paying off any debt. But that doesn’t mean you don’t pay your minimum debt payment, continue to pay that.

Now, when it comes to saving your emergency fund you have to be very specific on how much you actually need. You don’t want to save too little or too much, you want to maximize your efforts to best position yourself. Looking at where you live can help determine how much you need for your emergency fund. If you live in a small city then a starter emergency fund of $1,000 might be enough, but I would still bump it up higher if you’re a family.

Now with the popularization of millennials living or moving to larger cities to maximize their income. If you live in a big city like New York, Los Angeles or Atlanta, then $1,000 will not be enough. I would recommend saving 1 month of your mandatory bills as your starter emergency fund. Calculating your 1 month will consist of your mandatory needs like housing costs, utilities, transportation, groceries, and minimum payments on all of your debt. This number should match the amount you put into your bills checking account, which is part of the High-5 Banking Method

Step 2: Payoff Debt (Snowball Method)

After you have your 1-Month Emergency Fund, I would then prioritize heavily paying off debt. Now the method that helped my family get out of debt was the snowball method. We learned this through Dave Ramsey while doing a google search.  With the snowball method, you prioritize paying off your smallest debt, while making the minimum payment on your larger debts. Once you paid off that debt, you move onto paying off the next smallest debt which creates a snowball effect. 

Now to be transparent, one thing we did do to speed up our debt-free journey was to get side hustles and pay raises. That allowed us to we pushed more money towards debt without having to cut everything we loved out of our budget. To get better with anything in life, small sacrifices are necessary especially when it comes to money. One of the coolest benefits of getting out of debt was how our cost of living was reduced. Now that we needed less to get by, our emergency fund actually ended up being a month and a half of bills. Making our emergency fund and cost of living more beneficial. 

Step 3: Reward Yourself with Short-Term Goals

I am going to share something that a lot of people shy away from. And it’s the actual burnout from saving your emergency fund and paying off debt. It does take a precious amount of time and determination to achieve those two goals. Once we hit those two goals one thing my family did was to sit down and evaluate what we wanted. So, we’re taking a year to focus on our short-term goals. For me, that was taking a family trip to NYC to visit my grandmother. But for you, it could be something else. It can be a vacation, a new cellphone, or something to congratulate yourself on your accomplishments. 

The reality is that you have to enjoy some of the fruit of your labor, but without going back into debt. By saving for our wants through our short-term goals saving account, it has allowed us to prioritize our well-being without relying on debt to do so. This has been a game-changer for us because it has now become our “we’re not going back into debt account!”. This puts an instant smile on our face because we see the benefit of all the hard work we initially put into our finances. Now if you’re not familiar with the High-5 Banking Method, this is the last savings account within the method. It is designed to help you set and save for your short-term goals in a designated savings account. 

Step 4: Create a Balanced Approach to Your Financial Goals Moving Forward

Once you’ve enjoyed yourself for no more than a year, it is time to start balancing out your financial goals. Starting with beefing up your emergency fund, setting maintainable short-term goals, and contributing to your long-term goals. Now, setting up long-term goals is a tricky one for a lot of people. When talking to folks about their long-term goals, I notice that a lot of people don’t have any or just haven’t committed to them. I recommend you sit down and get clear on what you want so you can continue being purposeful with your money. 

Now when it comes to how much to contribute to each of these goals you have a few options. You can either contribute equally to your emergency fund, short-term goals, and your long-term goals. And once your emergency fund or short-term goals are fully funded, then focus on snowballing your income into your long-term goals. Consistently putting a specific and realistic amount of money into each goal allowed us to hit our savings goal without stress. 

I am not too big on delegating percentages of your income towards your goals. I know for my family we map out a certain dollar amount that we want for our goal and then work backward to achieve it. From that point, we come up with a consistent amount that we can comfortably contribute. If we get any extra money then we delegate it to the most important goal. These are two of the ways that we balance our multiple goals.

Closing Recap

Now to do a small recap on our financial prioritizes, our emergency fund, paying off debt, short-term goals, and balancing our goals. The reason we have chosen to prioritize our finances this way is due to our values, fears, and past experiences. Seeing your loved ones lose everything or go through health issues can really change your perspective on how to prioritize your money. I want to learn as much as I can from my past lessons so that I can position my family for the best. Don’t forget to sit down and consider what your game plan is to prioritize your money this year.

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