For millions of Americans, this year has forced them to make very difficult financial decisions. And while the economic recovery is very uneven, for people with some money leftover at the end of each month, the question might be what to do with it. Spend it or save it?
Andrea Bloome has devised a whole system so she can zero her credit card bills and plan for her future at the same time.
"My best plan is to take money before I ever see it, so I don't even know it exists," she said.
Money experts at Consumer Reports agree with her strategy and says it's important to find the right balance.
“It’s difficult to tackle two financial goals at once, but if you take a two-pronged approach, you can save for retirement and pay down your debt at the same time," Peter Wang said.
Start by taking a good hard look at where your money is going. Several online tools can help you track your spending, including Mint.com, which is free, and YNAP, short for You Need a Budget, which costs $84 per year.
Then, look for ways to free up cash. You'll have the biggest impact with big ticket items such as housing or transportation. But small fixes, like making coffee yourself or cooking at home, can also add up over time.
Next, prioritize your debt. High-interest credit cards should go first, then lower-interest debt like student loans.
At the same time, slide even a small amount into a rainy day fund for unexpected medical bills or car repairs, and, continue to feed a retirement plan.
If you have access to a plan at work, opt in. People who do have access can be 12 times more likely to save for retirement. It isn't always easy, but balancing debt against savings is the right call.
Although the strategies are good ones, Consumer Reports says it's important to remember that people with hefty amounts of debt need to be patient, stay the course, and remember that this needs to be a long term plan. The younger you are when you start to save, the better off you'll be in the long run.