One thing I struggled with when I set up my budget is deciding how much money I put towards debt and how much I put towards emergency savings and retirement. As I said before, I automatically set up my retirement deductions based off my company match. That money leaves my paycheck before I see it, so it’s easy to make a budget without it.
The next thing I did was start a savings account. Knowing I had more debt to pay off I started small each month just saving $50 per paycheck ($100 per month). If I needed to raid it to make ends meet at the end of the month I did (a few times at least), but I kept the automatic transfer so that, eventually, my savings would automatically grow.
Next I tackled my debt. I was able to consolidate my student loans a few years ago when I wasn’t making as much money. My income-based repayment plan, therefore, is not a huge amount each month and my interest rate is low enough that it won’t hurt to keep paying the minimum until I get the higher interest debt paid off. Check and see if your loans can be consolidated if they haven’t been already. And remember, if you set up auto-payments each month your lender may lower the interest rate a bit.
High interest debt, on the other hand, should be tackled as quickly as possible. After your monthly expenses, small savings plan, and any other essentials (e.g. food) put as much of your discretionary income as possible toward getting a zero balance on your credit card. Cutting cable and not going out to eat as much helped me shave quite a bit of cash from my spending (seriously, happy hour is a budget killer). I now put that toward my debt and find I can take a pretty good chunk off the principal each month.
So when you’re setting up your budget and asking if you should be saving for retirement, saving for emergencies, or paying off debt, the answer is, “Yes.” Do all three but change the percentage of your budget you spend on each as you first eliminate high interest debt.