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Top 5 Money Trade-Offs (And How to Tame Them)

Jeannie MacDonald  |  March 15, 2019

Dueling demands on your income are like a two-headed money monster. Here’s how to crush your financial priorities instead.

“I have all the money I need” (said no one ever). Let’s face it, my fellow non-Kardashians. Competing financial claims are a fact of life, right up there with death and taxes, and there’s often no right answer as to the best place to put our precious limited funds. If you’re waffling on where your money should go, take a look at these five tame-able trade-offs for some inspiration. 

Trade-off No. 1: Pay Student Loans or Build an Emergency Fund?

Nearly 45 million Americans are shackled to $1.56 trillion in college loan debt. If that Godzilla-size stat doesn’t scare you, consider this trade-off within a trade-off: To land a top-paying job, you need a degree, but you may spend decades paying for it — with cash that won’t be available for saving or investing.

“In your 20s and 30s, your biggest asset is your ability to earn money,” says Melissa Joy, CFP, CDFA, president of Pearl Planning. “Paying off college loans is vital, but if you’re too aggressive and don’t have any cash left at the end of the month, you risk piling fresh debt onto high-interest credit cards.” 

Throw at least the monthly minimum on your loans, but don’t stop there. Joy also urges recent grads to build that emergency fund: “Start small,” she explains. “Save $1,000, then set a goal of three—ideally 12—months of savings. That way, if you lose your job or need a new transmission, you can ride it out without going deeper into debt.”

The best advice? Choose both: Pay down your loans, while you pump as much into your emergency fund as you can. This is easier said than done, but even small deposits into your savings account will add up over time.

Trade-off No. 2: Ditch Credit Card Debt or Save for a Home?

Ironically, rising earnings can pave a slippery slope into Debt Valley. New Yorkers Haley O’Sullivan and husband Jim Oleskewicz have conquered their college debt, but O’Sullivan admits, “Between apps, credit cards and Starbucks on every corner, we’re constantly tempted to make the wrong trade-off.” 

Social media doesn’t help. On Planet Instagram, “everyone” (except you!) is swilling Cristal or taking exotic vacations. “Friends with tens of thousands of dollars of student debt will stay at a $3,000-per-night safari lodge but complain they can’t afford to move out of their rented studio apartment,” O’Sullivan says.

What’s up with that? Blame your parents (natch).

According to clinical psychologist Dr. Christyn Sieve, “As children, if we never learn to make meaningful choices between needs and wants, we can develop a distorted relationship with money. If we’re raised to believe that material goods increase happiness, we’re more likely to buy ‘stuff’ to fill an emotional hole, even if having everything you want when you want it is not actually a formula for happiness.”

The best advice? Master your plastic first then start saving for that down payment on a home. The financial payoff from paying down a 19.9% Visa far exceeds even the 2% you’ll earn in high yield savings. And repeat after me: The best things in life aren’t things.

Trade-off No. 3: Retirement Savings or College Funding?

This is an issue Joy says represents a big struggle for her clients. We’ve all heard the advice to prioritize retirement, because you can’t borrow for retirement, but you can borrow for college.  That said, I have yet to meet a parent who is satisfied with the thought of putting their own financial future so far ahead of that of their children—particularly with mountains of debt many recent college grads are facing. 

The best advice? Put your retirement first—but not exclusively. While grabbing every last matching dollar possible and trying to max out your tax-advantaged retirement saving eligibility, open a 529 college savings plan for your kids and start contributing small amounts each month. Tell grandparents, aunts, uncles and other interested relatives that these accounts exist and you’d appreciate contributions instead of gifts throughout your kids lives. And join UPromise, which will kick in money if you shop through their portal. Over time, it all adds up. If saving the full cost of tuition sounds daunting, then make it your goal to save for one-third of college, then when college rolls around, consider funding another one-third out of current cash flow and have your child borrow the remainder. 

Trade-off No. 4: Play the Market or Play it Safe?

Your investment goals are on track, but market spikes and swoons are making you nervous. Sure, you could move to conservative CDs or bonds—if you’re dreaming of a Very Ramen Retirement. So what to do—or not do?

“In your ‘50s, you need to get serious about retirement,” Joy says. “Put your foot on the savings accelerator. This is make-or-break time. Bailing out of investing is rarely an option, and will only reinforce bad behavior and difficult decisions in the future.”

The best advice? Women are more guilty than men of leaving too great a portion of their money in cash. It’s important to both be invested and stay invested if you want to reach your long term goals. To make sure your assets are appropriately allocated, either choose a target-date fund that does the work for you—or take 110 and subtract your age. The answer is about the percentage of your overall portfolio that you want in stocks.  Then, when the markets get rocky, turn off the news or make an appointment with a financial adviser who will hold your hand. The only sure portfolio killer is selling. 

Trade-off No. 5: Take Social Security Sooner or Later?

Just because you can take Social Security at age 62 doesn’t mean you should. Delaying until your full retirement age may be better for your financial situation. Each year you delay collecting, Uncle Sam adds 8% more to your check—a guaranteed “raise” that’s virtually impossible to beat anywhere else in the market. Still not sure? Crunch the numbers on your options here and calculate your estimated benefit here.

The best advice? Wait until full retirement age to collect Social Security benefits. Only collect early if you absolutely must. 

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