Money·3 min read

Should I Save, Pay Off Debt, or Invest?

When to Invest Image
August 29, 2019

The Story

‘Turning your money into more money’...a phrase that has a nice ring to it. But you probably have a few other financial priorities on your to-do list that come before investing. Like paying down debt. And saving.

It’s like you’ve seen my bank account. So where do I start?

With an emergency fund. This money comes to the rescue when life surprises you with something expensive. And can protect you from racking up more debt or selling investments to make ends meet. Eventually you’ll want to save three to six months’ worth of take-home pay. But start by hitting $1,000.

And then what?

Switch to paying off debt with double-digit interest rates. Which is what you can usually expect from credit cards and personal loans. Experts recommend focusing on high-interest debt before investing because you’re probably losing more money by paying interest than you’re earning from investments in the short term. And having less debt to pay is guaranteed to put money back in your wallet. Oh, and we’re talking about extra debt payments here. You should include minimum payments in your monthly budget and pay them every month. No matter what.

Related: How to ‘50/20/30’ Your Budget

Once you’ve paid off your high-interest debt, have a glass of wine. Then switch back to your emergency fund until you’ve saved at least three months’ worth of take-home pay.

So when does investing come in?

Right here. The good news is that since you’ve saved some and paid off debt, you’ve probably got extra room in your budget. To invest for retirement. Yes, people usually say saving for retirement. But if you’re putting money in an account like a 401(k) or IRA, you’re not saving. You’re investing. This is your first stop on the investing train because golfing and beachtime don’t come cheap — retirement’s your biggest goal. And the earlier you start investing, the better. A JP Morgan analysis shows that someone who invests less, but starts earlier, can end up with more cash money than someone who invests more but starts later. Thanks, compounding returns. If you have an employer match — meaning your company throws extra money into your retirement account — try to contribute at least as much as they’ll match. (It varies, but around 3% of your paycheck is common.) Because free money.

I think you’re forgetting student loans. When am I supposed to pay those off?

Once retirement’s on track, you can start upping your payments on lower-interest debts. Like student loans and mortgages. The pros call this good debt. Not because it feels good. The more you can pay off now, the less interest you’ll pay over time. While you’re working on that, you can start investing for your other big goals. Like getting married, starting your own biz, sending your kids to college. Or all of the above.

Related: The Best Investment Account for Every Money Goal


In a perfect world, you’d already have a big investment account...and a yacht. But this is real life, and you’ve got stuff to handle first. Work on those must-dos ASAP, so you can get to the part where you’re investing. Then let your money do the rest of the hard work.

Subscribe to Skimm Money

Your source for the biggest financial headlines and trends, and how they affect your wallet.