Get a good education, get a great career and make money baby – lots of it too. One thing we often weren’t taught was what to do with it. Your riches come from what you decide to do with what you earn and not the amount in which you earn. You get a pay increase, your year – end bonus, you have a garage sale, you win it big in Vegas, or maybe just an inheritance. What do you do with that money is a big question? We’ve succeeded in the arena of making the money, now what?

Saving is a smart thing to do, but you may have some debt you’d like to slash. You can add more money into your emergency fund or slash down some debt. Saving for your retirement fund or slash down some debt. What about the down payment for your home? All great choices, but which is better?

Where you allocate most of your funds would depend on your goals and the interest rate(s) of your debt(s). If the cost of borrowing is high, the rate at which your debt may increase can quickly wipe out any savings plan you have in place allowing you to not see the full benefit of what you saved. You don’t want your debt increasing quicker than your savings. Therefore, it is important to pay off debt with high interest rates so you’re not throwing your hard earned money away to your creditors.

On the flip side, if interest rates are low, then it may pose as a great idea to save too. Now, let’s define what a low interest rate is within this context. If the money you’re saving has the potential to grow, return on investment (ROI), quicker than the cost of your borrowing, than save away.

High interest rates, low interest rates, zero interest rates, regardless of the interest rate, it’s wise to always be saving a bit for an emergency. When an emergency arises and every dollar you’ve been earning has been going to debt repayment, you may end up right back where you started, because you may need to leverage your credit card to bail you out. If you’re saving at the same time and the same emergency arises, instead of using 100% of credit card, you may only need 60% of your credit card because the other 40% came from saving at the same time. This way your debt goes down with less of a likelihood to returning to the original start position.  

Working on a percentage scale may also help with your new found wealth. Up until this point, your savings and debt repayment plan is a percentage of your income. Therefore, you can break down how much you may want to contribute to debt and savings on a percentage scale. To aid in increasing your prosperity mindset, from the increase of wealth you can allocate 60% to debt, 20% to saving and 20% for living expenses. This will add confidence and have you stand taller, knowing that debt is going down, savings are increasing and you’re still able to play.

A good rule of thumb is that, if your debt repayments are a big percentage of your income, pay down the debt, even if the interest rate is low.