According to the conventional financial wisdom, you should prioritize the retirement savings as early as you can.
In addition to this, you need to contribute enough money to your 401(k) account to get the full employer match.
We all agree with the conventional concept, but we shouldn't forget about our financial obligations. We have to pay off our debts to establish financial peace in our life.
Because, some consumer debts like credit card debts, payday loan debt, and personal loans that are not backed by any collateral are harmful. They come with higher interest rate. If you don't pay off, you will lose more money with time paying interest. You should pay off these debts as early as possible.
Paying off debts is equally important as saving for the retirement. On the other hand, you can't underestimate the importance of an emergency fund as well.
So, you need set the financial goals wisely.
List all your debts and try to pay them off as soon as possible. It is the first step to learn how to save each penny to make some extra payments toward other debts. Remember, you are saving money by paying off your debts.
Target the lowest balance and make some extra payments toward it while making minimum payments to the rest.
Keep making payments until the debt is paid off. After that, target the second biggest amount. Follow this method until all the debts are paid off.
Before securing your retirement days, you have to build an emergency fund. Why should you feed an emergency fund?
Remember, you shouldn't carry debt in your retirement; it will let you live a financially miserable life in your golden days.
You can also determine the amount you need to save in an emergency fund by calculating how much you require to live on for at least 3-6 months.
Thus, you will be able to protect yourself against the unforeseen surprises.
Can you imagine your life with no mortgage payments? Home loan is one of the biggest debt in your way that you should pay off before entering into the retirement life.
Try not to carry the mortgage payments in your retirement days. Because, during retirement, you will have limited income to live your life.
Pay some extra toward the mortgage. By doing so, the mortgage payment will not scare you for a long time.
It is always good to start saving for retirement as soon as you can as I have mentioned earlier. But, it will be great if you kill all your financial obligations first including, unsecured debt, secured debts, and other personal loans.
Step 1: Make enough contributions to the 401(K) to get the full employer match.
Step 2: Try to invest at least 15% of your monthly income in the tax-advantaged retirement account.
Step 3: Keep an emergency fund to avoid unexpected debts.
Step 4: Start paying off your debts as soon as you can.
Step 5: Save money for kid's education.
Step 6: Save a $1000 baby savings for small medical issues.
Lastly, you have to understand that building financial security is important. It will help you to build wealth.
So, try to be free from all costly financial obligations and use your income as much as possible to build a fat retirement fund to enjoy your golden age.