Having clear financial goals can help you make smarter money choices day to day that add up to real, tangible results over time. Common goals include saving for a down payment on a home, paying off your student loan balance, or retiring early. But these financial milestones don’t just happen overnight.
They’re the result of all of the smaller steps you take everyday.
The real challenge is managing competing financial obligations. When you have more than one goal, it’s essential that you make your money choices with both of those goals in mind—which may seem easier said than done.
Managing competing financial obligations
Many Americans find themselves at a common crossroads: whether you should use your money to pay down debt now, or put it away for retirement and spend it later on.
The short answer: you should be doing both. The longer you take to pay off debt, the more you’ll pay in interest over time. And the longer you hold off on saving for retirement, the less you’ll have to live off of in your golden years.
General rules of thumb suggest that you should aim to save about 12%–15% of your annual salary each year as early as possible. Of course, for those just entering the workforce, it’s perfectly fine to work your way up to this figure. However, the challenge comes in when you’re actively working on hitting other financial goals. Say you took out federal loans to pay for college and you’re on an income-based repayment plan that sets your payment at about 10% of your discretionary income (the standard for most repayment plans).
When all is said and done, a large portion of your income is already accounted for before you’ve covered your basic living costs and other non-negotiable expenses.
So, how do you manage both goals?
Start by taking stock of your debt balances, interest rates, and minimum payments. This will tell you how soon you can expect to be debt-free and how much of your monthly…