Every paycheck comes with decisions. You look at your bank statement, you look at your pile of bills, you think about your wants and needs and then start making decisions. Should I pay MasterCard this month and forget about funding your savings account? Should I pay some unexpected car mechanic bill or contribute to the kids college fund? How do you decide between this bill and that bill?
1. College vs. retirement: Most of us want to help fund our kids’ college expenses. But let’s face it, college isn’t getting any cheaper and it’s getting progressively more difficult to come up with the monthly money needed just to pay a quarter of a college bill. Then there’s your retirement. While most kids can find money for college (scholarships, student loans, grants), there’s nothing I’ve heard of yet that will fund your retirement. So, if you have to decide between college or retirement fund, my money is on your retirement. Sure it’s not great that Junior has to fend for himself when that acceptance letter arrives, but it’s much better than having Junior fret about what his elderly and broke parents are going to do to eat. When the time comes to pay back his loans, maybe you’ll be in a better financial position to help him. But put that extra money into your future first.
2. Bankruptcy or pay it off: With the economy floundering, many people are eyeing bankruptcy right now and for some, it’s a viable solution. But not for everyone. Bankruptcy is not the best path if you want to maintain your credit. Once you’ve filed for bankruptcy, you’ll be forced to pay astronomical interest rates on everything going forward. Many apartment complexes look at your credit history and won’t let you rent if you have a bankruptcy on your records. Additionally many HR departments are pulling your credit and making judgments about you as a potential employee. Bankruptcy may be quicker, but the long-term effects linger and can make life more difficult.
3. Pay off debt or start saving: We’ve all heard about having a three to six month cushion of savings for emergencies and job loss. But what if you have debt that you’re paying off every month and can’t afford another dime towards savings? Should you siphon some of that credit card debt to a savings account or just focus on paying off debt? The answer is in the interest rates. If you’re paying 10% interest on that debt and your local savings bank is offering 1% on a savings account, you need to keep paying off that debt and the minute it’s over, keep paying the same amount, but this time towards your new savings account.
Having to make financial decisions every month is tough. There’s only so much money to go around, and so many bills and possibilities. The key is to think long-term.