Should You Invest, Pay Off Debt, or Save for Retirement?

Choosing where to focus your finances may prove difficult with all the available options. There are benefits and drawbacks to every important financial decision. You may choose to build your savings before paying off debt. You may want to eliminate your debt before saving for retirement or save enough cash to start investing. 

Ultimately, prioritization will look different for everyone — and it’s up to you to decide which financial moves will maximize benefits for your unique situation.

The Case for Investing

Investing is an umbrella term that covers all of the ways in which you may allocate your money to earn a profit. This may include investing in:

• Bonds — debt-based loans from investors that offer long-term, fixed-income interest based on market value.
• Certificate of Deposits (CDs) — similar to bonds but “lower risk”, short-term, and typically lower interest.
• Cryptocurrency — digital currency (like bitcoin) that you can buy and trade.
• Non-fungible tokens (NFTs) — digital assets (like videos, tweets, and art) that are one-of-a-kind that you can buy and trade.
• Precious metals — physical metals that are of significant value, fluctuating with the market, such as the market for gold.
• Real estate — real estate and possessions (physical items, gold, or even digital assets, such as NFTs) expected to increase in value.
• Startups — companies with growth potential.
• Stocks — publicly traded shares in the ownership of a company.

There are plenty of types of investments to look into, which will only prove to grow exponentially as technology and society advance. There are plenty of benefits associated with investing your money including potentially watching your money grow. 

This is the main risk of investing — losing money. For instance, certain stocks fluctuate in value more than others, making them highly volatile and considerably risky in some cases. However, risk should be evaluated on a long-term basis. The greater the volatility, the greater the chances of the value spiking back up. It all depends on how you want to play the investment game. One way to avoid risks is to disperse your money into several different investments. This way, if one of the investments tanks, you have something to fall back on.

In general, an investment may be the right avenue for you if you: 

• Can handle a little uncertainty; 
• Do your research;
• Have big financial goals; 
• Have some wiggle room with your money; 
• Want to have several streams of income. 

Of course, anyone may benefit from investing their money in some way. You don’t have to have a large stockpile of cash to do so. Automatic tools may even help determine the timing for your investments. Regardless of which route you take with investing, though, it’s always wise to read up beforehand.

The Case for Paying Off Debt

Alternatively to gaining interest on your investments, you may be paying interest on your debts. However, you are probably paying much more in interest than you would make off of most investments. 

Debt comes in four main categories — secured, unsecured, revolving, and mortgage. The most common types of debt include: 

• Auto loans;
• Credit cards;
• Home mortgages;
• Medical bills; 
• Student loans.

Debt can pile up quickly in unexpected places as well — such as unpaid utility bills or overdraft bank fees. If you want to pay off your debt, you aren’t alone. U.S. citizens owe trillions of dollars in debt. Most households owe some sort of money to some institution, and high-interest rates only add to that financial stress. 

Once you pay off your debt, you won’t have to worry about racking up fees and interest, or paying monthly minimums. Without these financial responsibilities, it’ll seem like you have extra spending money stressing about adding to your credit expenditure. You may even look into selling your assets for profit since you own them after paying them off. 

Getting rid of a certain amount of debt may also increase your credit score. However, maintaining a balance between your total line of credit and credit used is important — if you pay off your debt completely, you may even lower your credit score. You should look into minimizing your debt if you: 

• Are aware of any early payoff fees;
• Are burdened with high-interest rates and minimum monthly payments; 
• Have a small amount in savings;
• Need a relatively quick boost to your credit score; 
• Plan to pay off most of your debt, but not all;
• Want to open a new line of credit.

Of course, this option doesn’t allow you to put your money toward investments. However, if you are in debt that adds significant stress to your life, it may be worth paying off some of what you owe. 

The Case for Retirement Savings

Your money may also be put toward saving for retirement — and, yes, you can start saving for retirement early. This goes beyond simply setting money aside. There are many types of retirement plans, each with its own stipulations. The commonality between them is that your money is set to grow for a long period. All types of retirement plans fall under one or more of these categories:

• Individual retirement agreements (IRAs);
• 401(k)s; 
• Employer-sponsored; 
• Self-employed and business owner retirement plans.

Each category also has several choices within it, such as a Roth or traditional IRA. This may make the decision process seem a bit daunting. However, if you are employed full-time, employers usually have packages to choose from. Most employers typically match your retirement contributions up to a certain percentage of your salary, as well. 

Small retirement contributions accumulate in the long run, leaving you with extra cash in the future. This cash isn’t taxed until it is distributed. You can also expect tax breaks on your income each year that you are actively investing in your retirement account. Retirement plans also accrue funds over time — more so than most regular savings accounts. 

Be aware that there may be hefty account fees and fees for early withdrawals. Prioritizing retirement savings may be the right move for you if you: 

• Can set aside a little bit of your paycheck each month;
• Don’t mind paying account fees;
• Have emergency savings; 
• Handle your funds accordingly during any job switches

Saving for retirement may be the most responsible choice for long-term financial security. However, short-term financial responsibilities may supersede retirement savings depending on your unique situation.

How to Make the Right Investment Choice

Although there are plenty of options, the decision of where to put your money is ultimately up to you and your specific needs. You may want to seek financial advice when making your first investment. Otherwise, you may want to consider the following actions to empower your financial needs: 

• Consideration of financial goals — Evaluate how investing, paying off debt, and saving for retirement will impact those goals.
• Exploration of available investment opportunities — See how smart investors divvy up their funds, such as investing in tangible assets instead of crypto or investing in real estate at a young age.
• Factoring in your debts — Contemplate your financial obligation from all angles, especially if you need to open future lines of credit.
• Assessing your retirement options — Consider the maximum percentage you can comfortably put toward retirement and other, self-directed retirement plans.

Combine All Three Strategies

Instead of putting all your eggs in one basket, you don’t have to pick just one financial investment. You can enjoy the benefits of all three strategies in certain ways. For instance, you may want to: 

• Make real estate investments that contribute to your retirement plan;
• Pay off a chunk of debt while contributing a small amount to a retirement fund;
• Simultaneously invest in precious metals with an IRA.

Whichever investment route you choose, there are helpful tools available to guide you along the way. Know that — with the right knowledge under your belt — you can disperse your investments in smart ways that won’t leave you in a compromising financial position.