Common wisdom is to pay down high interest debt before saving. I mean, it makes sense right? If you are saving in an account that pays less than 1% and the interest being charged on your outstanding debt is higher you are, in effect, hemorrhaging cash. I picture it like trying to empty a bathtub with a spoon while the water is still running.
The fact is, sometimes even the wisest rule of thumb can get in the way of you getting what you want. One of my first financial coaching clients came to me after three years of using the conventional approaches to debt reduction and was working so hard to pay off her debt that she was unhappy everyday. She had consumer debt, student loan debt, and auto loans. She felt like she was on a never-ending merry-go-round that frankly wasn’t very “merry.” She summed up her life as “working, worrying, and paying debt” when it came to finding some relief.
I wish you could have seen her face when, after our hour-long conversation I looked her straight in the eye and said, “Clearly, you are just going to have to save more!” I think she wanted to choke me. She gasped and then laughed, “You’re kidding right?”
Nope! Not kidding. Sometimes you simply have to approach your finances from a “me first!” place and that is what happens when you trust in the power of saving for your future. Think about it, when you save you are committing to a future of financial possibilities. You are saying that whatever comes, you want to be ready. The “what” you are saving for ISN’T as important as the “why.” What will a savings account or a regular habit of saving do for you? Well, let me tell you what it did for her.
We put together a plan that balanced paying her debts and saving a little bit each month. She stopped reacting to the internal stress of the debts; they were still pressing, but she had a plan. She set three savings targets and completed them one after another. After a year of consistently saving each month, she was ready to tackle the debts more aggressively because she was so proud of her accomplishments. Her savings account became a badge of honor, her commitment to herself. When she borrowed from her account she added the amount to her list of debts to repay.
She is a happy, consumer debt-free homeowner, enjoying life with her young son. Sometimes, you simply have to remember your “why” to help you get (and stay) on the path to achieving your financial goals.