If you're like most young families, you probably have multiple financial goals that compete for your attention—from paying off student loans, credit cards and other types of debt to saving for a home, your retirement and your child's education.
While you may feel tempted to knock out your debt as quickly as possible, you may want to consider setting aside funds for investments, insurance and other strategies that can contribute to your financial success down the road.
Here are three reasons for striking a balance between paying off debt and building up your assets:
1. You want your balance sheet to be more than zero
Focusing all your efforts on getting out of the red might feel like the right thing to do, if only to stop paying interest and start to get ahead. But if you fail to save or invest during this time period, you could end up with a net worth of zero once you eventually are free of debt.
By putting some money in savings while you work to repay debt, you can still make progress toward important financial goals (like saving for a child's college) as you eliminate debt.
2. There's an opportunity cost to waiting to invest
If you don't save and invest as you pay down debt, you might miss the chance to take advantage of the compounding returns you can earn in the market.1
With all things being equal, if you can expect a higher return on your investments than the interest rate that you pay on your debt, you probably should consider your investment options. 2
3. You need to invest in your future
Imagine if you were to become disabled and no longer able to work, or if the family breadwinner died unexpectedly—would you be prepared? The costs of dealing with these situations without proper protection and income strategies would be far greater than paying interest on your debt for a few months longer because you invested in your family.
By investing and insuring appropriately—both in long-term savings vehicles and the appropriate protections for your assets and income—you can take a positive step towards building the future you want for you and your family. We can help.
1 Investopedia Staff, "Investing 101: The Concept Of Compounding," Investopedia. https://www.investopedia.com/university/beginner/beginner2.asp
2 Joshua Kennon, "Should You Pay Off Your Debt or Invest?," The Balance, October 31, 2016. https://www.thebalance.com/should-you-pay-off-your-debt-or-invest-356371