You may have heard the phrase “you can’t finance your retirement”. That simple statement reminds us that not everything can be financed. In a modern, digital, consumeristic world where products can be paid for with a couple of quick taps of your finger, money management could not be more important.
However, money management is fairly simple. Spend less than you earn and save the rest.
Getting into the habit of saving for unexpected expenses, saving for retirement and paying down debt will go a long way to get you well-prepared for retirement. A debt repayment plan can be one of the best ways to save money – this may sound strange but consider the example below.
Say you have a credit card with a $5,000 principal balance with a 18% annual percentage rate and you pay the minimum payment each month of $125. This would take you 5 years and 2 months to pay off and you would pay a total of $7,693 ($2,693 in interest).
Instead you decide you want to pay this off in two years so you double your payment to $250 (and don’t put any other charges on the card) you will only pay $989 in interest. That is a savings of $1,704! Plus, after the two years you will be free to put that $250 in a savings account, save for a future purchase or save for retirement.
It is easy to get yourself into debt and can take months or years to dig yourself out. Paying your debt off faster with extra payments each month can help you save money, not to mention, improve your credit. This will also help free up money for your other financial goals, including saving for retirement.
Check out this calculator to help you see how quickly you can pay off your debt. https://www.credit.com/tools/credit-card-payoff-calculator/
With these two examples it is easy to see how debt repayment can be an important part of your overall money management and even your retirement savings plan. Check out our next in the series, about TSP Funds. Follow our series – The DoD Blended Retirement System: Leading up to the Decision.