Brian Portnoy, found of Shaping Wealth, joins TheStreet to discuss how to handle saving for the future vs. paying off debt now.
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00:00 Now there seems to be a tug of war, a balance between saving and paying off debt.
00:07 And so dealing with debt can be a major source of anxiety for many people.
00:11 So what are some psychological tips for managing debt and staying motivated to pay it down,
00:18 also as you're keeping your eyes on your plans for savings?
00:22 Yeah, it's a great question. Unfortunately, there's not a perfect algorithm here.
00:28 It's very much something that the individual investor needs to sort out for himself or herself,
00:36 because the implicit question that you're asking is, should you focus on the now or
00:41 should you focus on the later? Well, we want to do both. And sometimes we just have to be honest
00:47 with ourselves and appreciate that there are trade-offs. If we have a lot of debt that is
00:55 at a very high interest rate and we let that go, it could compound into a very large problem.
01:02 So sometimes we need to make that longer-term sacrifice to deal with those problems today.
01:07 If there's any way possible to both pay off some elements of the debt now while also investing for
01:14 the long term, that's the best of both worlds. But I wouldn't want to say that that's easy.
01:19 It really requires honesty with oneself, a real insight into your current financials,
01:26 and how much money do you have coming in, how much money do you have going out, and what hard
01:31 decisions you might need to make from a budgetary perspective in order to serve the now as well as
01:36 the later. So is there a reasonable strategy, a reasonable way to do both, to pay down debt and
01:46 also save for a rainy day? Sometimes saving for the rainy day is actually to pay off the debt.
01:50 You're so right. You can do both, but again, the devil's in the details. So if you've got
01:59 debt at a very, very high interest rate, you want to begin to try to pay that down so it doesn't
02:05 get out of control. But if you've got some credit card debt, if you've got mortgage debt, things
02:11 like that, well, this is where the plan comes in. You can model out, you can see, and it's not
02:18 particularly complicated, you can see what the payments are going to be, you can see what the
02:23 interest is going to be. And so making an investment and paying that off somewhat while also
02:29 investing in your rainy day fund, they're both very powerful. Because if all you're doing is
02:35 paying off your near-term debt and you're not at all saving for the future, investing for the
02:41 future, especially retirement, you could find yourself in a pretty tough spot down the road.
02:46 So getting it all down on paper, having transparency, basically bringing sunlight
02:52 into the financial planning process so you know what you own and what you owe,
02:56 then you can begin to make the decisions, appreciating that these are hard decisions
03:00 that all of us have to make every day.
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