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