Do I save for retirement, or do I pay off debt, or can I even do both? Do I just do the retirement? Do I just pay off the debt? Is it possible to balance, or do I just give up like most people and don’t do either one of them?

Today, I’m going to try to give you some very practical tips in real-world language and terminology that might help you decide, “Do I save for retirement? or do I pay off debt?”

#1, The very first thing you have to do if you’re going to either save for retirement or pay off debt is you really need to get a good assessment for where you are. If I’m going anywhere, the very first thing I have to know is where am I right now? So here’s how you do it. You break down, you sit down, you look at a budget, and you say, you say to yourself, “What do I need for retirement in the future?” Well, the best way to do that is find out what you’re spending right now, that’s where the budget comes in, and then you begin to project toward a number through the years and say, “That’s what I need to save for retirement.”

Well, guess what? Debt carries with it its own number, and whereas retirement money will grow through the years, the problem is if you’re still carrying a lot of debt, you need to know your debt number because that’s going to grow through the years if you’re not careful because you’re going to have to be paying interest on that debt. Check out your credit cards. Sometimes if you just look, and they might give you a little note down at the bottom that if you pay this off at the regular rate that we’re asking you to pay this off, it’s going to take you eight years to pay it off, 10 years to pay it off. And the average interest rate on a credit card is 27.29% as of the middle of the year in 2024. Look, it’s a big decision, but the very first thing you’ve got to do is say, “Where am I on the way toward retirement, and where am I in the way of debt? How much do I owe?”

#2, pay off those high-interest-rate credit card debts first. Get the high interest rate done. Now, I know there’s a real popular guy on the radio every day that’s telling people, “Well, you got to start by paying off the little ones and then get the bigger ones and the bigger ones and the bigger ones,” and it’s the size of the account and the approach that he takes. I think as a financial advisor, it’s much better for when you’re doing that assessment, remember step one; when you’re doing that assessment, rank everything you owe by how much interest you’re paying. If you are paying 27% on something and you’re only paying 2% on something else, or 4% maybe on a car loan you got two or three years ago, definitely you want to pay off the highest interest rates first.

How do you do that? You list them. You say, “What do I owe, and what is the interest rate,” and take the highest interest rate and pay the minimum on everything else. But on that one with the highest interest rate, you pay everything that’s owed to it every month, but you also pay any extra every month. That way it’s not only lowering your debt every month, but it’s also paying off the one that’s raising your debt every month with that high interest rate.

#3, take advantage of your employer retirement plans. Does your employer offer a 401(k) or a 403(b)? If they do, do they offer a match? Hey, newsflash, that’s free money. So if they offer, you say, “Well, it’s just 2%,” well, let’s think about this. If you put in two, and they match it with two, you’ve got four and you put in two. I’ll do that math all day long. But so many people are trying to decide, pay off debt, save for retirement, what do I do? Start saving for retirement at least up until the employer match on your 401k, because you’re not only putting a little money to that side, but you’re also getting it matched to some level by your employer, so take advantage of the free money that’s available to you on the retirement saving side.

#4, you need to automate anything you’re saving on the retirement side. That’s why I love the 401(k) and the 403(b). If you’re employed, then go to your HR department, go to your employer if you work for a really small group and say, “I want to get involved in the 401(k). What’s the match? Is there a match,” then get that match. But what you’ve done is you’ve automated it because that’s going to come out of your paycheck before the paycheck ever gets to you. They’re going to deduct that in a pre-check-issuing form, and that’s going to go directly to the 401(k) company. You throw up your hands and you say, “How can I automate it if I don’t have a 401(k)?” Hey, you can start an IRA, or even better yet, a Roth IRA where you go ahead and pay the tax on it now.

You say, “What do you mean?” You can automate it. The day after you get your paycheck every month or twice a month, the day after it, on one time a month, you can automate that 100, 200, $300 goes automatically into a company that’s holding your IRA. That way it goes in, but quickly it comes out, and you don’t have to sit there and write a check for it. Because some months you might look at that balance, and you might look at that check, and you might look at, “Well, you know what? I need to go out to eat,” and so instead of putting the money in the IRA or the Roth IRA, you don’t write the check. That’s why it’s important to automate it. And here’s what I promise. Once you automate that and you do it for three, four or five months, it becomes such a part of your system that you don’t even miss it.

#5, consider downsizing or some lifestyle adjustments. You may look at your budget and say, “I shouldn’t be spending that much on that,” or “We don’t need to spend that much on that,” or “We’re spending that much on that, but maybe we can do this to supplant that so we don’t have to spend that much money.” And so there may be ways that you adjust by looking at it and making some decisions.

And here’s why this will help you, even if you don’t make the decisions to cut. Here’s what happens in the real world. Here’s what happens in real life. You’re forced sometimes because of maybe a downsizing at work and you lose your job, or if you’re married, and one of the spouses loses their job, or if you’re dependent… A lot of times I’ve seen people dependent on overtime, and they go through a period of time where they just don’t get the overtime that they were getting, or down close to the year, you’re counting on that bonus you got last year, but you don’t get a bonus this year, so the money just doesn’t come in. You’re looking at your budget, and instead of making a choice to downsize or adjust, you’re forced to downsize or adjust. Well, it’s not a bad idea to go through everything you’re spending and say, “If we do have to downsize, if we don’t make as much money, if we lose this, this is where we’re going to save the money so that we balance our equation and we don’t go further in debt.”

#6, explore debt consolidation. Now, be careful here. Okay? There are a lot of companies that make a lot of money off of people by doing debt consolidation. And here’s what I mean by being careful. Don’t turn something that’s going to cause you pain for two more years to pay off into a 10-year note by refinancing your house and pouring it over into the house and going up on what you owe on the house. Be careful. All right? Yes, it’s a lower interest rate, but if you can bear it for a shorter period of time and get rid of that, it’s much better than the idea of spreading that debt. What you do when you turn it into a 30-year home note is you turn maybe something that you could get paid off in a year-and-a-half or two years and it be behind you, you turn it into a higher house payment for the next 30 years. So be careful that it’s not a trap, it’s not a trick that you go into it, you want to get out of it, and you say, “I really made a mistake.”

So, again, you’ve got to go back, if you decide to do a debt consolidation, and find out… Here’s what you need to find out. And in the truth in lending laws that are enacted all over California, all over the United States, you should be able to see in any debt you go into, what’s this going to cost me in interest over a period of the time of the loan, of the time of the mortgage, of a time of a 10-year period? What is the truth in lending says, “This is how much you’re going to pay an interest”? Be careful. Where is that interest coming from? It’s coming out of your wallet. You don’t want to pay interest. You want to pay principal when it comes to paying off your debt. And paying it off in a shorter time could be really advantageous to you, versus paying it off spread over a longer period of time might make you feel better, but it might not be advantageous to you. The question is, how much interest are you paying to get it all paid off?

#7, trying to decide whether to save for retirement or pay off debt, I’m going to throw a curveball to you here. Number seven is build an emergency fund. Man, you get this plan for retirement, you go and you’re getting that match, so you’ve got your retirement moving; that’s good. And you’ve got this debt snowball where you’re paying extra down on the one that you owe that’s got the largest interest rate. Well, let me tell you something else. Stuff still happens in life, and you still need an emergency fund. When you’re paying down that debt, nothing is more depressing than to pay down that debt, not have an emergency fund, and then just as soon as you get paid down and you’re beginning to feel that success feeling, and then boom, you have to put a new roof on the house, or boom, you have to put a transmission in your car or one of your kids’ cars, or boom, that unexpected hits. What’s that in the ceiling? Oh, now it’s dripping, and you have to re-pipe your house.

One of the worst things you can do is have to go in debt further once you’ve started paying it off. It’s like having something that begins to heal, and then you just rip the scab off and it’s all starting over again. How do you avoid that? If you’ll build an emergency fund over a period of time, then when you have the emergency or the stuff that happens in life, you’re able to go to that emergency fund, and it doesn’t derail either your retirement savings or your debt snowball that you’re paying off.

#8, is just the warning. Avoid tapping into retirement savings early. You’re trying to build this retirement account, and until you’re 59-and-a-half, you can’t touch it, because if you touch it before 59-and-a-half, there’s a 10% penalty in addition to the tax that you’re going to have to pay as regular income to add to your income. So please, please avoid at all cost, if you can, tapping into a retirement account that’s got a 10% penalty on it before you’re 59-and-a-half. What you’re doing is you’re just borrowing from Peter over here to put more money that you owe on Paul on the debt side. So be very, very careful as you’re growing that retirement fund. That’s why the emergency fund needs to be there, so that you can go to that for the stuff that happens in life. Because if you go to the retirement fund and you borrow out of that before you’re 59-and-a-half, not only do you have to pay the income tax on that, but you also have to pay a 10% penalty. Who wants that if you’re trying to get out of debt and build retirement?

#9 is seek professional advice. You need some help with some instructions because the 401(k) is like if you get something from IKEA that you’re supposed to put together and you’re not given any instructions many times. Following the instructions is hard enough. Okay? But if you don’t have the instructions, you’re winging it. You’re on your own. And this is the first time you’ve ever done it. And there’s so many things in a 401(k), it’s just let me throw it anywhere in there. No, there’s some specific things you need to do, and you need some coaching many times on a 401(k). And the people that are in the HR department at your work, they don’t normally know how to coach anybody on a 401(k), so you need some professional advice.

And then on the other hand, if you’re in debt, and you’re really, really, really in debt, maybe you need some coaching on that advice. Don’t be afraid to ask for help. If you’re drowning in the ocean and a lifeguard is trying to save you and offering you help, the very first thing you have to do… I’ve even heard of lifeguards sometimes, because I was one summer in Florida when I was in junior high, I’ve even heard of lifeguards sometimes who have to just actually punch out the person so they quit fighting them. You say, “If I go to a debt consolidator, are they going to punch me out?” No, no, that’s not what I’m saying. I’m saying you have to give it up and say, “I need help. I need help on my 401(k). I need help on getting out of debt,” and throw up your hands and say, “Somebody help me,” because there are people out there, there are professionals out there who can help you. We can help you at Mosley Wealth Management. Other financial planners can help you all over the country, wherever you… If you’ve got one, use that one. Use that advice. Get help if you possibly can because it’s not all that easy. All these things sound good on a podcast, but actually putting them into place is pretty tough.

#10, stay disciplined and monitor your progress. See, putting the plan together is one thing, but sticking to the plan and monitoring your progress and monitoring how you’re doing makes a big difference. I have actually seen people who bought a little whiteboard that was maybe two-feet-by-three-feet, and they monitored their debt and they monitored their retirement plans, and they put it somewhere… Don’t put it on your front doorstep, and don’t put it in the living room, but they put it somewhere where they could see it all the time. Say, “I don’t want to see that.” If you don’t want to see it, you don’t want to look at it, you don’t want to monitor it, chances are you’re going to stay right where you are forever. But you’ve got to address it. It’s got to be before you every single month if you want to address it on a monthly basis and review it. I think you’d see more progress.

And I don’t think you should go longer than every quarter. Every three months, you need to sit down and say, “Where were we on our debt,” and you know that because you wrote it down three months ago, and “Where are we now on our debt,” and you write that down so you can look at it three more months down the road, and then, “Where are we on our retirement savings? This is where we are now. This is where we were three months ago.” And then three months later, you come back and you look and you say, “What kind of progress have we made?”

One of the most discouraging things I think it is for people is they set the plan and they don’t discipline themselves to follow it, and the reason they don’t discipline themselves to follow it, it’s like a diet. “I didn’t eat a lot last night for dinner, and I got on the scale today, and I’m almost the same I was last night. Forget this diet deal.” You just don’t stick with it over a period of time. Well, don’t measure yourself every day. Measure yourself financially every quarter is what I would suggest. Make the plan, discipline yourself, monitor yourself, and stick with it. Be a winner on this.

So what have we talked about? We’ve really talked about a plan, and we’ve talked about staying with it. That was our point number 10. But it really encapsulates everything we’ve talked about in all 10 points. There’s one more overarching thing I want to bring up in closing. You need to have the right mindset about this. You need to have a forward-looking mindset. Imagine the time where all of that money you’re paying for interest you can use to go on vacation, where all of that money that you’re paying right now for interest, and that’s why you need to tabulate it at the very beginning, you can use it for yourself. So you need to have the right mindset, and that is, “I’ve been bad. I’m going to be really good for a while, so that in the future I can really, really be good.” Look toward the future. Look toward your goals.

That’s why I encourage you to get that white board, to at least put it on a… You say, “Well, I’ll put it in my computer.” There’s something about putting it in your computer. You have to open it up. Most of the time, you’re the only one opening it up, and if you’re married, both of you need to look at it all the time, and it’s got to be a goal that both of you work toward. But this mindset that it is something we want to accomplish and we’re going to set our mind to it… I’ve got enough confidence in most of you who are listening to me, I didn’t say everybody, but I’ve got enough confidence in most of you who are listening to me that if you’ll set up a plan, you’ll execute that plan and discipline yourself to that plan, and you keep the right mindset about it, there’s going to be brighter days for you financially because the debt’s going to be gone, that’s the goal, and the retirement plan just continues to grow.

Hey, we’ve talked today about saving for retirement in a 401(k) or an IRA. Those are accounts, and those are important, but they’re just part of what builds a real retirement blueprint is what we call. If you want to really know what goes into building a plan for retirement, that retirement blueprint, then click on the tab here and go to a full show where we just go through and walk through what’s involved in a real retirement plan that we call a retirement blueprint.

I end every week by saying if you’ll give me 8, 10, 12, 15 minutes, I’ll do my best every week to increase your financial knowledge. If you like what I did today, hit the like button. If you want to know when we have future shows that come out, subscribe to our YouTube Channel. You can also go to our website. There’s ways you can get personal help there. Don’t just stay there doing the yo-yo plan. You’re on your own. You don’t have to be. We can help you do the building for retirement and the consolidation and the elimination of debt. I’ll see you next time.