If you have outstanding debt, such as student loans, credit card debt, a mortgage, or other, you may be wondering how you should spend your money. Should you pay off a credit card? Contribute an extra payment to your student loans every month? Or are you thinking about ways to enhance your retirement accounts? Should you use the money for the future?
Unfortunately, the answer isn’t a simple yes or no. Most people want to invest in a 401(k) or another form of retirement account to ensure they have a solid financial future, while others are only focused on paying down debt to enhance their credit score or get in a more stable position financially.
To determine the best path for you, you will need to review your personal finances and budget to see how much extra cash you have at the end of each month and determine the best way to use it. In some cases, you can do both.
We have tips for you to ensure you’re maximizing your income for your future. Read on to learn about maximizing your 401(k) without digging yourself into debt, and how to create a debt repayment plan so you can also contribute funds to your retirement.
Evaluate Your Debt
The first step to any financial strategy is evaluation. Start by reviewing the different types of debt that you have. Is it good debt or bad debt?
According to Investopedia, “good debt” has the potential to enhance your finances or your life, such as buying a home or starting a business. “Bad debt” on the other hand, involves borrowing money to purchase something that will not enhance your financial snapshot, such as debt from a credit card from going on vacation or a shopping spree. The difference can help you determine what kind of financial debt you’re looking at, and where you can afford to adjust.
Organizing your debt can help it feel manageable, and as you tackle one debt after the other, you can adjust your monthly budget and assess where there are extra funds that can be used for other interests, such as contributing to your 401(k).
Review Ways to Maximize Your 401(k) Without Increasing Debt
Another option is to find ways to maximize your 401(k) without hurting your budget or your debt payoff plan. Are you maximizing contributions through your employer’s program? Are you utilizing 401(k) matching if your company offers it?
Start by evaluating your retirement plan. If your company offers 401(k) matching, which includes matching a percentage of your salary to enhance annual contributions, then you should be participating in it. Even an additional 1% contribution increase can make a significant difference over time.
If you’re not sure if a match program is offered, email your employer’s human resources team or benefits specialist for more information.
You can enhance your retirement accounts without breaking your budget by contributing bonuses and raises to the account. Because the money you receive for these things is outside of your normal budget, you can afford to contribute most or all of it to your retirement accounts.
If you’re trying to pay off debt and simultaneously save for retirement, you can likely do both, it just takes some financial planning and evaluation to get you there. By assessing your debt, determining a payoff strategy, and finding ways to optimize your 401(k) without breaking the bank, you can secure a solid current and future financial plan.
If you need to know how much you should save for retirement to help you organize your budget more appropriately, visit the Slavic401k blog for tips and insights. You can also use one of our retirement calculators to help with your retirement savings planning.