Q: Dear Ruchi, As we’re heading into the spring, I’ve been thinking about how to manage my finances for the rest of the year. I want to start investing some of my extra income, but I still have debt to pay off. Should I prioritize paying off my debt before investing, or is it okay to start investing while I’m still working on clearing it?
A: Here’s the truth: You don’t have to be completely debt-free to start building wealth. But if you’re carrying high-interest debt (hey, credit cards—I’m looking at you!), that’s where your focus needs to be first.
Why High-Interest Debt Should Be Your Priority
Think of it this way: If you’re paying 20% in interest on a credit card while your investments are earning an 8% return, you’re not actually making money—you’re losing it. High-interest debt works against you, making it harder to get ahead financially. That’s why tackling these balances first is a smart move. Paying off high-interest debt is essentially a guaranteed return on your money because it stops that constant drain on your finances.
Not All Debt Is Created Equal
Now, let’s not forget that not all debt is bad or urgent to pay off. Some types of debt, like mortgages or student loans, typically come with lower interest rates (think 5-6% or under). These debts don’t necessarily need to be eliminated before you start investing. If the interest rate is low and manageable, you might benefit from making steady payments while also putting money into investments that can grow over time.
It’s all about balance. If your debt has a low interest rate and your budget allows it, there’s no reason you can’t start investing and growing your wealth while continuing to pay it down.
Build a Strong Financial Foundation First
Before diving into investing, it’s crucial to set yourself up for success with a solid financial foundation. At Watch Her Prosper®, we help women create money strategies that actually make sense for their lives. Here’s where to start:
- Create an Emergency Fund: Aim to save at least three to six months’ worth of living expenses in an accessible account. This prevents you from having to rely on credit cards or sell investments when unexpected expenses pop up.
- Develop a Savings Strategy: Whether it’s setting aside money for future investments, a big purchase, or business needs, having a plan for your savings keeps you in control of your financial future.
- Set Clear Financial Goals: Investing looks different for everyone. Are you saving for retirement? A down payment on a home? Building generational wealth? Knowing your long-term goals will help you choose the right investment strategy.
When Should You Start Investing?
The key? Know your numbers, know your goals, and make moves when the time feels right for you. If high-interest debt is weighing you down, focus on knocking it out first. But if your debt is manageable and you’ve got an emergency fund in place, there’s no reason to wait—you can start investing and letting your money work for you.
At the end of the day, your financial journey is yours. There’s no one-size-fits-all answer, and that’s okay. What matters most is making smart, informed decisions that set you up for long-term success. If you’re feeling stuck or unsure where to start, Watch Her Prosper® is here to help. Together, we’ll build a strategy that fits your life—so you can grow your wealth with confidence and live your most prosperous life!
Here’s to your prosperity.
Ruchi
