Should you save money first or pay off debt?
It's a really common question I get asked by people who are looking to secure their
finances and build that financial stability and then start to grow wealth for themselves.
So in this episode, we are going to answer that question for you and give you some really
great pointers on knowing where the perfect place is for you to start.
So if you've got some debts and little savings, then it really becomes difficult to choose
sometimes to know, like, do I begin by saving or do I begin by paying off debts?
Because both of them are causing me some stress.
And I get asked this question a lot.
So there is a correct answer when it comes to crunching the numbers.
And then there's a correct answer when it comes to YOU.
And we're going to talk about what the difference is between the two and how to decide which
way you want to proceed that is actually going to serve you best.
And back when I was running my finance company, I used to have these conversations with people
a lot.
Not so much around, you know, just generally moving forward financially and getting a handle
on their finances, but with really specific goals in mind.
So, you know, they might have been wanting to buy their first home say or an investment
property.
And I would have to say to them, look, you're going to need to pay off some debts to be
able to borrow the money for the new house.
Or you're going to have to save some money to have enough of a deposit.
And sometimes it was a case of, you're going to need to do both.
You're going to need to clear some debts and you're going to need some cash in the bank
to be able to go ahead and do what you want to do.
And so, you know, then the conversation turned to exactly what we're going to talk about
today.
What is the best way to proceed that is specific to you?
So if you are working with a financial advisor or maybe your mortgage broker, because you
want to buy a property, then, you know, make sure you talk to them because if there's a
really specific goal you're working towards, there may be some factors that influence your
decision.
But outside of that, let's talk about it here.
Let's talk about what in general is the best approach.
So number one, on a numerical, number crunching basis, it usually does make sense to start
paying off debt as quickly as possible because that debt is working against you.
That's compound interest, you know, working against you.
You're being charged interest on your debts usually.
And then if you're not staying on top of that, you are being charged interest on the interest
and then interest on the interest on the interest.
And that's how many people get into a situation where they have these debts that have kind
of gotten out of control and they can't even manage to stay on top of them, let alone pay,
pay them down.
But then on the other hand, you have the fact that if you don't have a lot of savings in
the bank right now, that makes you really uneasy and it really leads you nowhere to
go.
Like, if anything was to go wrong, you're screwed, right?
And that's really, really stressful.
So when we look at how that makes you feel about your finances, you're feeling stressed
about money, you are worrying, you know.
You might even lay awake at night going, "Oh, I hope nothing goes wrong.
I hope the car doesn't break down because we don't wouldn't really know what to do.
We don't have a lot of savings and our credit cards are maxed out."
And so there's nowhere to go, right?
And that's a really important factor because as much as numerically, it makes sense to
get on top of that compound interest, vibrationally, the correct answer is actually do whatever
is going to help you feel better first.
Because as you feel better, as you start to feel better about your finances, your financial
position, you start to align with abundance more easily.
And that means that you can get into a space where you can then start to generate and attract
more money into your business and life.
So the right answer for you may be different to what makes numerical sense, just because
if you don't get a little bit of money in the bank to fall back on, in case of emergency,
you won't be able to sleep at night.
And the stress of that alone is going to cause you to, you know, keep attracting more problems
rather than attracting more money to help you get out of this situation.
So I'm going to share with you in a moment, a really good approach that is kind of a little
bit of the best of both worlds that tends to help most of my students.
But before then, I'd like to know in the comments below: Just let me know what stresses you
out, more lack of savings or debt?
Which one of those causes you the most stress?
So one of the traps that people fall into when they start deliberating this - do I save
or do I pay off debt - which comes first is they think that they have to do it all at
once.
They think about the totality of it all.
Like, I really want to have $20,000 cash in the bank to fall back on at a minimum so that
I can feel really calm and relaxed and know we're okay, should anything happen.
That's a lot of money and you don't have to do it all in one hit.
And then they think on the other hand, "Oh, you know, we have credit cards to the tune
of whatever."
And they think about the totality of that and paying them all off is a lot and takes
a long time usually.
So here's the trick.
Break it down.
When you break it down into little micro goals and smaller milestones along the way, you
can actually swing between the two areas of focus and move ahead on both.
But here's the key: Always, always focus on just one at a time.
So let me give you an example.
Say for example, that you owe $10,000 on credit cards and you want $10,000 cash in the bank.
That's kind of the bigger goal.
So if we're going to break that down, we might say, okay, where do we start?
What is the first thing that's going to help you feel better and sleep at night?
And it might be, well, I just want to, for starters, just have $1,000 in the bank, right?
Because at least then I know if the car breaks down or the electricity bill blows out, or
we have a big medical bill, we've got it covered.
Okay.
So you start there.
So that's your first focus and you focus only on achieving that and park everything else.
And that actually means just maintaining minimum payments on your credit card, because if you
were making extra payments before, then if you now funnel that towards achieving this
$1,000 target of savings, you will get there a whole lot faster.
Once you've gotten there, then you can shift your focus to the next micro goal.
And it may be "Okay, we're going to pay off that first credit card," which maybe has a
balance of $2,000 or something like that.
So you choose a micro goal rather than all of it at once.
And you say, "Okay, I'll get rid of that.
And that then reduces the amount of compound interest that's working against me.
I feel better.
I've cleared a debt.
I've got a thousand dollars cash in the bank as well."
And once that micro goal has been achieved, you can swing back to, "Okay - now I'm going
to focus on increasing my savings to $5,000 cash.
And guess what?
I don't have to pay that credit card anymore!
So I now have extra money available that I was making in payments towards that.
And I can now achieve the next goal on the list.
And then when you get to $5,000 in cash, you go, "Oh, that feels so much better.
Okay.
Now I'm going to get stuck in and I'm going to clear the next debt on the list, or maybe
the next two debts on the list".
But see how we are breaking it down into smaller achievable goals, but we're still focusing
on just one at a time.
And that changes the whole question from, "Do I pay off my debt or do I accumulate savings
first?"
To, "Okay, what's the first micro goal that's going to help me feel a little bit better,
feel like I have some breathing space, again, feel confident and more comfortable about
my finances, help me raise my vibration, which means I start attracting more money (and it
does!
It'll just come out of the blue!) and let me know I'm moving forward.
It's about getting started and taking little baby steps as you go.
Now, all of what I've just talked about, we actually help you do in the Magnetic Money
System BOOTCAMP.
So that is a bootcamp that you can take yourself through at your own pace, with all the workshops,
all the tools you need to set up your entire money system and systematically work through
those goals.
I will leave the link for you to check out bootcamp in the description below this episode.
And if you want to just get started on reducing debt and that being your number one focus,
then I do actually have a free debt elimination planner that you can get started with right
now.
And the link to that will also be in the description of this episode below for you.
Okay, I hope that's been really helpful and that you now have an idea of which micro goal
you would like to start with.
Because you know, if you are somebody who already has some savings in the bank and that's
not really the hugest stressor for you right now, then the answer for you may be to start
with a debt.
But remember you don't have to do all of them at once, but you do need to focus on one at
at time.
Now I'd love you to let me know in the comments below.
Has this been helpful?
Do you have more clarity now?
Where are you going to start?
What will your first milestone be?
I will also share with you a couple more episodes that you might find very helpful and they'll
be in the cards - which I think will be up there or in the other corner.
No, I think it's this one.
And also a couple more episodes for you here that you might like to watch next.
It's time for you to embrace your unlimited potential and that abundance, that is an inside
job.
But remember there are things we need to do on the outside as well to help it to flow.
I will see you in the next episode, have a beautiful day.
Bye for now.