Don't Wait to Invest Just Because You're in Debt

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As we launch into the new year with a new set of financial goals -- or recommitting to some old ones -- it's a good time to discuss a common misperception: that you should focus on paying off all your debt before making any investments.

I bring that up now because paying off debt typically tops the list of New Year's resolutions. Yes, knocking out debt is a laudable goal. However, knocking it all out before you begin to save is typically not a sound approach. And that's especially true if you're young and just beginning your financial journey.

Let's dig into this a bit. Here are things to consider if you're assessing the idea of beginning your investing journey in 2024, even while you are carrying some debt:

Time Is Your Friend, Until It Isn't

I say that with conviction. Sitting at the back end of decades of compound returns, I know I left a lot of money on the table. At the time, I completely justified the decisions I made. Some of those decisions were about financial survival. Others were about living life to the fullest -- at the time. However, looking back over my 36 years in the workforce, I can see that if I had squeezed out an extra $50 per month, I would have in the neighborhood of an extra $160,000 now. Wow. Today, to turn $50 a month into $160,000 before I retire, I'd need a Lotto win.

Some Debt Should Be Prioritized

With interest rates skyrocketing in recent years, it's important to focus your debt-elimination efforts on the most harmful type of debt: high-interest credit cards. If you are carrying balances on that type of debt, that's the one time I would entertain the idea of holding off on starting to invest.

Your Vision Should Be Invigorating

It can be difficult to get excited about stashing money away for the future when you could put it to good use today. However, a clear focus on the future, the things you want to achieve and the lifestyle you want to live could allow you to treat investing like an opportunity rather than a burden.

An Employer Match Is a No-Brainer

If "free money" in the form of an employer match is available, don't miss out. Using my example from above, in that hypothetical scenario, your $50 decision could translate into more than $300,000 with the help of your employer's matching contribution. Contributing at a level that provides the maximum available employer match should be a priority, even with debt.

It's a Marathon, Not a Sprint

With all the turmoil that we have seen in the financial markets over the past few years, it's important not to lose your focus and let short-term news and results shape or dampen your enthusiasm for investing and the future you are building. This is a good topic for a separate article but important to note here.

If I could go back and talk to a younger version of myself, I would acknowledge that there were legitimate reasons I couldn't afford to invest. However, sitting on the other end of the journey, the truth, I would say, is that you can't afford not to invest. I can't go back and change the numerous small decisions that would have had a huge impact on the choices I have today. Maybe, you can do better from the start.

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