How to balance money: Saving, managing debt, investing and having fun

It's a common question: How do I prioritize financial goals and mix in some fun?

Tags: Budgeting, Debt, Goals, Investing, Lifestyle, Planning, Savings, How to
Published: July 20, 2020

Striking a balance between saving, investing, paying down debt or enjoying the moment can be challenging, but a good first step is figuring out your priorities. 

Once you’ve established your list, the big financial decisions in your life can start to feel more manageable.

 

Define your goals

You know you need to save, plan for retirement and keep your debt in check. But what does that really mean to you? It can be helpful to put the numbers on the back burner and think in terms of what you want your money to do for you, instead.

Do you:

  • want to buy property?
  • have or want kids? If so, do you have a plan for their education?
  • want to be free of lingering debt?
  • value regular travel, enjoy live music, or like trying new restaurants?

You might be planning for more than one of these things, or have completely different things in mind. “What matters most is prioritizing your goals, in writing, so that you can weigh them and make a plan to work toward them,” says Tom Rushin, vice president, division consulting manager at U.S. Bancorp Investments.

 

The debt dilemma

Debt is often thought of as universally bad. It costs interest and can hurt your net worth. But not all debt is created equal. “Using debt to help manage your finances can be a useful tool,” says Rushin.

Most people can categorize their debt into productive and nonproductive. For instance, you might consider your mortgage productive debt: It can help you build equity (and your net worth) and may help you qualify for a tax break. Student loans can also be thought of as productive debt — they may have been necessary to help you get an education that led to you earning your current income.

On the other hand, credit card debt, especially if it was accrued spending on things that don’t contribute to your net worth or financial future, is often considered nonproductive. “If it’s not contributing to your future, get rid of your debt as soon as possible,” Rushin adds.

Even productive debt can be unproductive when it carries high interest rates. “High interest rate” can be a relative consideration, so it’s generally a good idea to consider whether the interest you’re paying on debt is higher than the return you might receive if you invested the same money.

 

Are you ready for an emergency?

Even the best-laid financial plans can be derailed by an emergency. So, having a plan in place can be critical to achieving your goals, whatever they are.

Rushin recommends having at least six months’ worth of your household income set aside for emergencies. If six months sounds intimidating, start with three months and grow your savings from there. Next, start to think about where you’re keeping it. Consider products that might earn you a higher interest rate than a standard savings account, such as a certificate of deposit (CD) or money market account

If you have an emergency that requires a smaller amount of savings, you may want to think about using a home equity line of credit to pay for it. “You wouldn’t want to sell assets to cover an unexpected expense, so maybe taking on some low-interest personal debt would be better,” says Rushin.

Your emergency plan may vary based on your previously defined goals and financial situation.


Saving and investing

How much money you set aside, and whether you choose to save it or invest it, will also reflect your goals and timeline.

Consider saving for shorter term goals, such as buying a house, as a savings account is more liquid than money in investment accounts.

Consider investing for your longer-term goals that will benefit from time and patience, such as retirement or paying for your child's education. Let’s say you want to prioritize saving for your child’s education

When deciding how to invest for your goals, be sure to carefully assess your risk tolerance. According to Rushin, one of the most common mistakes people make is being too conservative with their investments. Talking to a trusted financial professional can help you assess the risk of different assets and which might work for you and your goals. 

 

Don’t forget the fun

For most people fun is more of a day-to-day interest than a goal, but it’s still incredibly important to your quality of life — and your budget.

It can be helpful to think of fun in non-financial terms. For instance, if you value the family time you get on an annual vacation, the destination may matter less than making sure you get a break each year to spend time together. Once you’ve identified that core criteria, budgeting for fun can be easier.  Some years, you might be able to vacation in Europe, other years you might go camping.

“Working with a financial professional can help. They can look at your wish objectively and say, ‘You have x amount of dollars you can spend on this,’” says Rushin. Incorporating enjoyable activities into your financial plan year-round, whether it’s a semi-annual vacation or weekly date nights, can help you make sure having fun doesn’t derail your fundamentals.

 

Stay disciplined

There are a number of theories for the best way to prioritize saving, investing, managing debt and enjoying life. These decisions are never cut and dry and what’s right for you might not be right for another person, even if you have similar financial situations. 

How you balance your money generally depends on your life stage and personal goals. Knowing where you want to be five years from now can make your big picture financial balancing act much easier.

 

Learn about our approach to planning.