Prioritize your emergency fund and high-interest debt

Retirement is the most expensive financial goal most of us will ever have, so it makes sense to start saving as early as possible. But there are a few financial goals that should be higher on your priority list. If any of the following apply to you, you should definitely put your retirement savings on hold until you’ve mastered these other tasks.

It might be tempting after all that hard work to indulge yourself instead of putting more money aside. And it’s OK to do it a little. But saving for retirement takes decades of diligent preparation for most people, so you don’t want to put it off too long.

1. You don’t have an emergency fund

A emergency fund is your safety net for unexpected expenses. Building one should be everyone’s main financial goal, because without it, you could end up in debt if you unexpectedly lose your job or end up with a costly emergency room bill. And if you find yourself in debt, it can be difficult to cover your basic living expenses, let alone save for retirement.

Your emergency fund should contain at least three months of living expenses, and six months is even better. Some people prefer to keep up to a year of savings in their emergency fund if they think they will have difficulty finding work after a job loss.

It’s ultimately up to you to decide how much you need to save. If you only focus on your essential expenses, such as food and housing, you won’t have to save as much. But if you do that, you might have to forego extras, like your streaming services, if you find yourself out of work for an extended period. Or you can simply factor these costs directly into your emergency fund budget.

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Store your emergency savings in a high yield savings account or another easily accessible location. Do not invest these funds. You may need to withdraw them at any time and if they are invested you may need to sell at a loss. You’re better off investing only the money you know you won’t need for many years.

If you do end up dipping into your emergency fund, replenishing it should be your top priority so you’re ready for the next emergency. And you should check your emergency fund every year or two to decide if you need to make any adjustments. As your expenses increase, you may need to set aside more per month. If they drop, you may be able to transfer money from your emergency fund to your retirement savings.

2. You have high interest debt

You can save for your retirement while paying off several types of debt. But when you’re talking about credit card debt or high-interest payday loans, it’s usually best to put your retirement contributions on hold for a little while.

These types of loans carry exorbitant interest rates, which can make them difficult to repay. You could lose more money in interest charges in a single year than you would earn by investing the same amount in the stock market. It is therefore essential to erase this debt.

There are several ways to do this. The simplest is the debt avalanche method. You make the minimum payment on all your credit cards, then put any extra savings you have on the debt with the highest interest rate. When this is paid, you transfer all of your additional savings to the card with the next highest interest rate, and so on.

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But if you need a little extra help, you can opt for a balance transfer card or a personal loan. Balance Transfer Cards Temporarily halt the growth of your balance, making it much easier to pay it off. But there is usually a fee for this, and the 0% APR period will eventually run out.

Personal loans, on the other hand, give you a predictable monthly payment for the life of the loan, and you don’t have to post anything as collateral. But these loans can also have above-average interest rates, so they’re not always the most affordable way to pay off your debt.

And of course, while you’re working on getting out of debt, you have to be careful not to accumulate more. It is therefore essential to pay attention to your spending habits and stick to a budget.

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When should you return to retirement savings?

The only time you might want to save for retirement while you’re still working on the above goals is if you qualify for a 401(k) match. If you don’t contribute money to your retirement account, you lose that money forever. So it may be worth throwing just enough of it into your 401(k) to claim the full match before returning to these other issues.

Once you’ve built up your emergency fund and paid off your high-interest debt, you can safely return Pension saving. You may want to reevaluate your retirement savings strategy and possibly increase your monthly contributions so that you can continue to retire on your original schedule. Or you may need to push back your retirement schedule if you can’t save more.

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