Here’s the secret to maximizing your net worth while paying off debt.
Transcript:
BERNADETTE JOY: What I, I have instructed my clients to do, which has worked really well, is gather anything that’s going to grow your net worth into this one category called strive. And so that includes the investments but and savings. But it also includes paying down debt. And so what that really helps people realize is that there is a trade off between investing and paying down debt. But specifically, if you pay down your debt and you make sure that you do it early enough and not let it linger forever. Debt can become a short term solution, not a long term lifestyle. And so I really strongly encourage people to bucket everything that grows your net worth into that one same section of your budget so that you can see, well, maybe it is time for me to pause on doing investing just in the short term in order to pay down this very high interest debt.
Or it might also indicate to us that we might need more savings. In the book, I talk about having at least one month’s worth of a cash flow cushion sitting in your checking account, but what I found was that a lot of people get into credit card debt because they don’t have enough cash on hand, and when they put it into a high yield savings account or into a savings account, they almost feel like they have to break glass to go get it. And so they’ll accrue stuff on the credit card. So if you have one month’s worth sitting in your checking account, that helps you stop living paycheck to paycheck. It reduces the likelihood that you’ll get into credit card debt. And so building up that one month’s worth of cash flow cushion helps you pay down debt faster.
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