Although the two don’t seem to logically go hand-in-hand, saving money while also paying off debts is certainly possible. With a few simple adjustments to your lifestyle and budget, you can create a comfortable and debt-free future.
The first step to saving while paying off debt could be to create a household budget that trims unnecessary expenses. This budget will only be feasible if it allows for some discretionary spending to avoid feeling trapped or “broke”. Examples of areas that could easily be trimmed without too much lifestyle shock include eating out one less night a week, consuming one or two less high-priced beverages (such as cutting back on a latte or cocktail), and switching groceries to generic brands. Think about how much you could save each week by making these changes, then multiply that by 4-5 times per month! These small changes can certainly impact the amount of additional money you will have to put toward paying off debts and increasing your savings.
The second step to saving while paying off debt is to consider designing a debt payoff strategy that best suits your needs. Paying off debts utilizing the “snowball” effect is a popular method of paying your debts in a specific order. You could choose to either 1) Pay off the smallest balance first, which can be motivating in a short period of time because you see the number of debts you owe drop, or 2) Pay off the highest interest rate first, which makes the most sense from a pure financial approach, since you will keep more of your money in the long-term. Choosing the best debt payoff strategy will be a personal choice so that you find a strategy that you will want to maintain over the long-run.
The last step to saving while paying off debts is to build your emergency fund and future investments. Once you have designed a trimmed budget and chosen your debt strategy, you can plan to have additional money placed into an easy-to-access emergency savings account. Although this account will not produce much (if any) interest, there will be no penalty for taking the money out should you absolutely need it. However, once you are able to build your savings to a sufficient amount (three to six months of expenses is typically recommended), you can then start to invest part of your monthly additional money into accounts that will produce higher return rates, such as an investment account or an IRA holding diversified mutual funds.