When it comes to financial wellness, it can feel like you’ve got a lot of balls in the air. You’ve got to manage a budget, build up savings, invest in retirement, and chip away at debt all at once—sheesh! So, what do you prioritize? Should you build your savings, pay off debt or invest?

If you can’t see a way to do it all, take a deep breath. We’re here to help you find a method to the madness. To make real progress on your financial goals, you need to know how to prioritize them first. 

The top 3 most important financial goals  

Here’s a quick rundown of the most important financial goals to focus on in order of priority: 

1. Pay off high-interest debt 

2. Build up an emergency fund 

3. Make ongoing investments (e.g., contribute to a 401(k) or IRA, invest in a stock portfolio)  

Let’s take a closer look at each one of these goals so you can start making headway on your financial wellness journey. 

Priority #1 – Pay off high-interest debt 

If you have high-interest debt, set a goal of paying it off as soon as possible. This is especially true for small amounts of debt that you can quickly pay off within a few months.  

For example, when the Covid-19 pandemic hit and I was temporarily laid off from my job, I panicked and took out a personal loan. In my anxious rush to secure immediate funds for my household, I overlooked the part where I’d have to pay back 12% in interest. Oopsie!  

After taking a closer look at the loan a few months later, I did the math and realized I’d really done my bank account a disservice. The interest alone would cost me an extra two thousand dollars more than I’d borrowed in the first place if I kept making minimum payments! So I made a plan to double down on my monthly payments and get the personal loan taken care of ASAP.  

If you’ve got a high-interest debt hanging over your head, you could dip into your emergency fund like I did to help clear it up quickly and save yourself more money in the long run. However, if you completely drain your emergency fund to pay off your debt, you could set yourself up for more debt down the road in an emergency, so proceed with caution and use it wisely.  

Once you’ve cleared out the high-interest debt, prioritize re-building your emergency fund before moving on to anything else.  

Priority #2 – Build an emergency fund 

When your furnace needs to be repaired in the middle of winter or your car needs a new transmission so you can get to work, how will you pay for it? If you’re like more than 60% of Americans, you may have to consider taking on more debt in the form of credit cards without an emergency fund to fall back on.   

That’s why building an emergency fund is number two on the priority list. It’s a proverbial cushy pit of foam cubes that makes sure you can climb back to the top of your rope without letting life’s curveballs damage your credit score. So if you don’t have an emergency fund that could cover at least one month of expenses, build one to avoid going into future debt.  

Priority #3 – Make ongoing investments  

Once you’ve built up an emergency fund and tackled high-interest debt, it’s time to focus on making ongoing investments in your future. This includes contributing to a 401(k) or IRA and investing in a diverse stock portfolio. 

If you have the option to contribute to a 401(k) through your employer, take advantage of it. Many employers offer matching contributions, which essentially means they’ll match the amount you contribute up to a certain percentage of your salary—that’s free retirement money! 

If you don’t have access to a 401(k), or if you’re already maxing out your contributions, open an IRA and start contributing to that. You can contribute up to $6,000 annually ($7,000 if you’re 50 or older). 

And finally, remember to invest in a diversified stock portfolio. This is one of the best ways to grow your wealth over time and achieve financial security in retirement. 

Final thoughts on whether to pay off debt or invest

There’s no shortage of financial goals to focus on, but you don’t have to tackle them all at once. By prioritizing your goals and taking a strategic approach, you can make headway on all fronts—it just might take some time. So be patient, stay the course, and remember that every little bit counts. 

At Julep, we understand that money is about more than dollars and cents—it directly affects your overall wellness. That’s why we’ve created an app that uses psychology to help you improve your relationship with money to hit all of your big financial goals. Learn more about Julep today.  

Post Disclaimer

Julep is not a financial institution, financial advisor, or credit repair company, and does not provide credit repair services of any kind. The information provided is for general educational and reference purposes only. The information is not intended to provide legal, tax, or financial advice. We do not propose any guarantee that the information provided will repair or improve your financial profile. Consult the services of a competent licensed professional when You need financial assistance.

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