Balancing your finances with proper planning and budgeting is key to living a financially secured life and inching towards financial freedom. Improper planning or lack of thereof can lead to depletion of savings, financial and relationship strain and debt accrual. If you’ve been hit by these shaky times and are unsure how to plan your onward journey, which goal to prioritize, here’s a guide. 

You can opt to get a head start but before you make any important financial decisions, it is advisable to consult your trusted financial planner. They will help you personalize solutions that are best suited for you and current situation. 

1. What matters to you most?

Which goal is your priority? Is it Debt payment or saving for retirement? How much debt do you have to pay? How close are you to retirement? Do you have enough time to pay your debts and then save for retirement? Is that the right choice? Should you save for retirement equally as much as you work to pay your debts? Should you take a focused approach and clear one goal and then move on to another? There is no one right answer to this question. The plan of action is highly dependent on your age, income in flow, short term and long-term goals. To best answer this question, you need to list your expectations and consult a well-educated and experienced financial advisor to guide you through this crucial financial decision. 

2. Interest vs Earning

You could be paying a debt interest anywhere between 10-20% or higher. Comparatively your savings will fetch you interest at 5-10% depending which instrument you’ve chosen. If you choose to aggressively invest in market-based instruments such as mutual funds or equity, you could earn up to an average 15-20% a year. However, this is subject to economic conditions and performance of the fund, you invest in. Before you make the decision of paying debt v/s saving for the future, you need to consider interest v/s savings and inflation rate in mind. 

3. Your consequence depends on your choice

It is always advisable to pay off your debts first. But you should not put all the eggs in one basket. Saving for the future, building an emergency corpus is equally important. Based on the decision you may make today, your tomorrow will be rewarding accordingly. What you save today has a longer time span for growth. However, what you don’t pay off as debt prolongs the interest and the emotional and financial strain that follows.

If your finances and time allow, you should work aggressively to:

1. Save an emergency corpus. This will shield you against unwanted expenses that you’ve not accounted for in the near future. 
2. If need be, add a second income and create a time plan to clear off your debt fully. This will help ease the stress. Also, you’ll not be paying high interests and sinking your money, what could otherwise be saved. 
3. Once you’ve become debt-free (congratulations!) you can start with planning your retirement. You’ll now have your income in full to build financial security and inch closer to your coveted financial freedom. 

If you feel you want to focus on both goals simultaneously, you could focus a larger portion of your available income to clearing your debt and a smaller fraction to saving. Eventually as your debt becomes smaller in size, you can notch up your savings for the future.