Debt, Savings or Retirement: Which Comes First?

So, you’ve finally gotten your spending under control and have a few extra dollars each month. Now what?There are three basic choices: paying off debt, retirement savings, or shorter-term savings. What is the best choice for you? Most experts recommend creating an emergency fund first, then paying off debt and then saving for retirement. But it isn’t that simple. There are many variables to consider. Before you make your decision, ask yourself the following questions:

Do you have an emergency fund? How much? What is the minimum amount of money you could survive on each month? Where are you in your military career: are you just in, nearing the end of an enlistment, or a few years from retirement? What are the chances that you or your spouse wull be without income for a few months?

What type of debt do you have? Credit cards, student loans, car payments, mortgage? Credit card debt should be paid off quickly, followed by car loans. Student loans fall into a gray area and require thoughtful consideration of your entire financial picture.

When do you expect your next PCS? Do you have any idea where it might be? Do you have any special expenses that you incur when you move? For example, we put our cats in the kennel each time we PCS and I know that I have to budget for that expense.

Does your employer match your retirement savings? For active duty military, there is no government match for your TSP contributions. If your employer is offering a match on 401k or 403b contributions, you want to make every effort to take advantage of this “free” money.

What is your insurance situation? Make sure that you have appropriate life, disability, auto, personal property, and liability insurance. Consider whether your family would benefit from a Tricare supplemental medical policy.

The answers to these questions will help you create a plan for your financial future. I suggest that you list things in order of importance to you. Once you’ve take care of the most important items, you can move down the list and work on the next parts. Be sure to review your plans periodically to see if you need to make any adjustments. A thoughtful plan will help you use your money in the best ways possible, and will also help you know what to do when a bonus or a raise come to you.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.