Multitasking is bad for productivity: If you’re in a meeting trying to send out emails while listening to the speaker, chances are one of those tasks is going to suffer. You need to give one task your full attention. But when it comes to your money, multitasking is a necessity.
If you’re thinking that you’ll start saving for a house “as soon as” you have some extra money, you’ll never get around to it, writes personal finance columnist Liz Weston. That’s because we’re all programmed to focus on our immediate needs. And there’s always something immediate that needs our attention, and money.
The biggest balancing act is saving for retirement while you have debt. You have heard (and I’ve written) repeatedly that you should absolutely contribute to a retirement account up to the employer match, if your company offers one, regardless of how much debt you have to pay off. But, why, exactly, when all of that debt is there hanging over your head?
Investing is an important part of a healthy financial life. You want your money to grow, and, short of winning the lottery, investing is the best way to do that. But as Jonathan Clements, the editor of Humble Dollar, reminds us in his newsletter, it's hardly the only thing that matters.
The reason is three-fold. First, because of compound interest (or, interest on interest). Second, because you will get a tax break that you will not get again. And third, because the return you’re likely to receive, assuming you keep your money invested over the long-term, is higher than the interest rate on your loans. All of these factors play into each other, meaning you will actually lose out on a lot of money if you focus on paying off your debts to the detriment of your retirement savings.
That’s a hard thing to wrap one’s mind around, particularly when you’re looking at a four or five-figure hex debt load right out of university, or, let’s be honest, many years after university. We really can’t comprehend compound interest or compare returns effectively. But it’s the truth.
Here’s the thing, though. That doesn’t mean focusing exclusively on your retirement, and funelling any extra money you have into your savings account or super. You can contribute up to the match (which is, in essence, part of your salary), while making at least the minimum payments toward your debts, while putting $10 aside each month for another short- or long-term goal. It’s a balancing act, and doesn’t mesh well with of a lot of single goal-oriented advice out there, but it’s the best way to put yourself in good financial shape.
In the ideal financial world, we’d all have fluffy bank account balances, solid investment portfolios, houses that are paid off and no debt. In reality, it’s difficult to see even one of those goals come to fruition, let alone all of them at once.
One way to do this beyond the basics of automating and socking away a tiny amount to start, Weston writes, is to have a single total monthly savings amount, but to divvy it up in different buckets. So you might have $1,000 per month to pay for child care, loan payments and retirement. Start small, stick to it, and when one expense ends or a goal is met, redirect that money to one of your other buckets. These are basic examples, so you can tweak as needed.
Personally, I keep track of my various “buckets” in my planner, which adds another layer of accountability, makes me compete with myself and ensures I’m not out there ostrich-ing my money. Others have suggested keeping track with paper and markers in a communal space, if it’s a goal you share with your spouse or kids, or using apps like Digit or Qapital.
You can’t do everything at once. Paying down debt, saving for retirement, socking away money for your next holiday, accumulating enough for a down payment on a house, opening a brokerage account — there’s just too many goals for the average household to handle. But any budget can, and needs to, work on a few goals at once.